Sensex Trades Flat; Pharma Stocks Gain

After opening the day in green, share markets in India witnessed choppy trading activity throughout the day and are presently below the dotted line. Sectoral indices are trading on a mixed with stocks in the pharma sector and stocks in the realty sector leading the losses, while stocks in the pharma sector are trading in green.

The BSE Sensex is down by 11 points (down 0.1%) and the NSE Nifty is trading down by 10 points (down 0.1%). Meanwhile, the BSE Mid Cap index is trading down by 0.5%, while the BSE Small Cap index is trading down by 0.6%. The rupee is trading at 67.35 to the US$.

In news from stocks in the pharma sector. Lupin share price is in focus today after the United States Food & Drug Administration (USFDA) completed its inspection of the company's Nagpur facility with no integrity or repeat observations for the unit.

The US regulator completed the inspections with no observations and cleared the plant.

At the time of writing, Lupin share price was trading up by 1.5%.The company's Nagpur facility manufactures oral solid products.

BSE Healthcare Index Down 26% in Three Years

Is this the right time to buy pharma stocks?

There was a time when almost every stock in the pharma sector was considered to be a safe stock. You could just pick the top 5-6 companies from this sector and expect to make decent returns over time.

In fact, it was termed as defensive sector. However, in last two years, things have changed a lot. There is enormous uncertainty in the industry.

Uncertainty regarding price erosion in the United States as well as hostile US FDA visits, have changed a once defensive sector into a risky sector.

However, we believe this could be a point of consolidation in the industry i.e. with stricter norms, lower margins, and pricing pressure, the industry may see many exits and acquisitions. This could lead to relatively fewer but higher quality players.

We believe, if you can pick a niche company with good financials and strong management, this is a good time to consider pharma stocks.

Moving on to news from stocks in the auto sector. Government run, Energy Efficiency Servicres Ltd (EESL) which is tasked with procuring electric vehicles for government use could soon be inviting foreing players to bid for electric cars.

According to a leading financial daily, foreign automakers such as Nissan, Hyundai and Kia Motors could drive away with 20% of the government's tender to procure 10,000 electric cars, as the procurement agency plans to set aside a share for upgraded sedans and luxury cars.

EESL had previously floated a tender for 10,000 electric vehicles, but only required basic electric cars. Tata Motors and Mahindra & Mahindra jointly won this bid. With Tata Motors cornering 60% of the tender offer.

Note that EESL plans to all a fresh pre-bid meeting once there is clarity on charging specifications, which will take four to five weeks.

It will be interesting to see which automakers would vie for the bid, especially with foreign auto players involved.

Currently, electric vehicle sales are low in India, rising 37.5% to 22,000 units in the year ended 31 March 2016 from 16,000 in 2014-15. Only 2,000 of these were cars and other four-wheelers, according to automobile lobby group Society of Indian Automobile Manufacturers (Siam).

The government wants to see 6 million electric and hybrid vehicles on Indian roads by 2020 under the National Electric Mobility Mission Plan 2020.

The government is targeting to have all cars propelled by the electric engine by 2030. The target is more daunting than in many advanced countries.

According to the industry, the 2030 target would require eight to ten times the global stock of such vehicles. India would need to sell more than 10 million electric cars in 2030, compared to 5,000 electric vehicles India had on the road in 2016.

As you can see from the chart above, India is barely visible compared to other developed countries when it comes to battery cars.

As an article in Business Standard suggests, such a big jump in scale for the auto industry in 13 years seems difficult. The basic infrastructure is missing. There are not enough charging stations. For this massive shift, the charging stations will need to be as ubiquitous as petrol pumps.

Another issue is the price of the lithium-ion battery, which constitutes 30% to 40% of the cost of the car. For this plan to succeed, the price of the battery needs to come down.

The auto industry is already facing regulatory headwinds. The shift from BS-IV emission norms to BS-VI has been two years ahead of schedule without an intermediate stage. The government, if it is serious about such ambitious targets, should offer the necessary infrastructure support and do its bit for a smooth transition.