July 03, 2018|
We are pleased to present to you our monthly market commentary and outlook for the forthcoming month. The ‘stockaxis’ Market Intelligence’ is a quick update on the markets for the month gone by and our view for the next month. Use our sharp and crisp synopsis to continue building your wealth!
Improved global markets and normal monsoons have triggered positive developments for the following three sectors among others:
The Indian pharma sector, which had so far been negatively impacted by US regulatory tightening, consolidation of buyers, an increasing number of observations from the USFDA (US Food and Drug Administration) and greater competition, is now experiencing a positive shift towards growth and valuations. Pharma companies have taken a number of measures to sustain this positive upwards move. First, companies have stepped up their research and development spends, which will result in several product launches across complex generic and specialty categories during FY19-20. Second, pharma companies have added new plants to avoid business loss in case of any USFDA observations. Third, in the domestic market, pharma companies will witness strong growth due to population growth, increasing geographical penetration, improving healthcare infrastructure and the government’s focus on better healthcare for the masses.
India is expected to be blessed by the third consecutive year of normal monsoons with the IMD and Skymet projecting rainfall at 97% and 100% of long-period (LPA) respectively. The 4-month period of June to September provide about 80% of India’s water requirements for agriculture. This bodes well for the agri sector, which is on an uptrend since the last 2 years. In addition to higher produce, normal monsoons also result in lower agri input costs and better quality of produce. This, in turn, is expected to have a significantly positive impact on farm incomes. Normal monsoons coupled with government initiatives such as minimum support price (MSP) for crops and a wider e-NAM network (National Agriculture Market) will result in higher farm incomes. Sectors related to rural India (tractors, insecticides, rural finance, rural infrastructure, etc.) are expected to do well, going forward.
Information Technology (IT)
The Indian IT sector is witnessing green shoots with new areas of opportunities, improving global markets, greater usage of digital technologies and larger deal sizes along with the added comfort of a depreciating rupee resulting in free cash flows. The industry is clocking a rise in exports especially in its primary market, the US. The increasing acceptance of outsourcing in Europe has opened up another geography for Indian IT companies. The industry estimates exports to rise by about 30% in FY19. Two other positives for the industry are the end of pricing pressure in the US and higher contract values for traditional services. Additionally, the initiatives of migration to the cloud and customization will offer a sizeable revenue stream.
The Engineering, Research & Development (ER&D) segment has been growing and Indian IT companies are positioned to grab a large share of this business. This segment includes IoT (Internet of Things) in every product and service, customisation of products/services, greater cost efficiencies, more innovation in products, enhanced user experience, etc. According to Nasscom, the Indian ER&D industry is expected to clock a 10-year CAGR of 13-16%, which is nearly twice the growth of the overall industry.
|New higher-margin products
|Expanding digital adoption
|More USFDA-approved plants
|Higher produce, better quality, lower cost
|Robust domestic market
|Higher rural incomes
|New revenue streams
|Higher share in ER&D