Stock market watch: What to expect from the week ending September 3, 2021

Watch out for the Bank Nifty now: After remaining in sideways mode during June and July series, Nifty has finally broken out in the August series. This breakout resulted in a significant rally in Nifty and it ended the August series with a gain of 858 points (or 5.4%). Better than expected results season and faster vaccination drive were the main domestic triggers for this rally. However, Bank Nifty failed to break out of its range and remained below its psychological resistance level of 36,000.

Supported by tech and financial services companies, global equity markets continued with the rally and several sector indices are hitting new highs. Taking clue from this global equity rally, September series has also started on a strong note on 27 August and Nifty closed the day with a gain of 68 points. How is the September series expected to shape up?

“After a brief consolidation, Nifty is expected to extend its upside. 16,350 is the major support level and the bullish tone will remain intact till this level is not violated,” says Gaurav Ratnaparkhi, Senior Technical Analyst, Sharekhan.

Since financial service companies comprise a major portion of Nifty, lack of participation by Bank Nifty in this up move remains a worry. However, technical experts say that some action is happening on the Bank Nifty front as well. For instance, Bank Nifty usually has large short positions and the most of the same did not get rolled over to the September series. “Since the Bank Nifty is much lighter now, upside breakout may happen in coming week itself. If the breakout of happens, Bank Nifty’s trajectory is clear till 37,600 and this may lift Nifty to the next target of 17,170,” says Sacchidanand Uttekar, Deputy VP, Trade Bulls Securities.

(Narendra Nathan/ET Bureau)

Sector update: Pharma

Strong show in domestic formulation business

The strong performance of Ind-Ra rated companies in April-June with domestic business up 41.9% y-o-y and 27.7% q-o-q was on account of a) increased interactions between patients and doctors along with a rise in marketing activities by pharma companies, b) revenue contribution from covid related products and supportive therapy, and c) lower base in April-June 2020-21. As per AIOCD-AWACS, covid drugs sales stood at Rs 592 billion in July 2021 against Rs 468 billion in June 2021. The acute segment benefited due to the use of anti-infective drugs in covid treatment.

Ind-Ra expects the Indian formulations business to grow 8-10% y-o-y in 2021-22, driven by the lower base in 2020-21, higher growth delivered in April and May 2021, sales contribution from covid related products and normalised but-healthy growth seen in June and July 2021.

Strong acute therapies stage recovery
A recovery was observed in April-June 2021-22 in acute therapies such as anti-infective, gastrointestinal, vitamins, analgesic and gynaecological therapies.

Weak performance by US generic business
The US generic business sales fell 5% y-o-y and 6% q-o-q in April-June 2021-22, attributed to a high single-digit price erosion in the US generic market coupled with a continued weak demand for the acute portfolio of products during the quarter. The high incidence of price erosion was led by suppliers looking to 1) liquidate large inventories, 2) a lower number of abbreviated new drug application approvals, leading to companies bidding aggressively on existing products and 3) aggressive pricing by small players to gain market share. Ind-Ra expects the US market to grow over the near to medium term, based on new launches and calibrated R&D investments approach towards complex molecules which could witness a lower impact of price erosion than plain vanilla oral solid products.

Healthy growth in rest of world sales
The RoW business sales grew 12.5% y-o-y in April-June 2021-22. Ind-Ra expects the RoW markets to witness volume growth in double digits in the coming quarters, as the vaccination drive accelerates.

API business delivered subdued performance
Ind-Ra has seen API stocking and key starting materials supply disruption in the past quarters, leading to API companies’ revenue growth declining 2.4% y-o-y and almost flattish q-o-q performance. Companies are seeing stability in raw material pricing. The supply chain has stabilised and companies are looking at building higher capacities in this business by taking advantage of the Performance-linked Incentive Scheme.

Ind-Ra witnessed EBITDA growth of 14.8% y-o-y in April-June 2021-22. Given lower margins profile of covid portfolio and price erosion in the US business, EBITDA margins remain largely flat. Ind-Ra expects companies to continue to report EBITDA margin around 20% in 2021-22.

(India Ratings & Research)