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Informist, Tuesday, Sep 10, 2024

By Noel John

MUMBAI – Sharp gains in select stocks in pharmaceutical and information-technology packs helped the benchmark indices rise sharply, taking the Nifty 50 back above the 25000 level after just two sessions. The index opened higher tracking positive cues from global peers, but fell owing to a sell-off in major insurance companies and banks. 

The Nifty 50 and the BSE Sensex both ended 0.4% higher at 25041.10 points and 81921.29 points, respectively. The sell-off seen in early trade was quickly absorbed by the high liquidity in the market, said Kranthi Bathini, director of equity at WealthMills Securities. Technical and derivatives analysts expect the markets to remain range-bound, with a positive bias going forward ahead of the US Federal Reserve's interest rate outcome next week. They see support for the 50-stock index now pegged at 24750 points, while the resistance is around 25300 points. 

Life insurance stocks plunged after the GST Council on Monday postponed to November its much-awaited decision on reducing the Goods and Services Tax rate on health insurance premiums. The deferral in the GST cut punctured the sentiment in the health insurance sector, but the probability of the proposal going through at the next meeting of the council is very high, said Sunny Agrawal, head of fundamental equity research at SBI Securities.

Shares of HDFC Life Insurance Co and SBI Life Insurance Co were the worst performers in the Nifty 50 index. "On the one hand, the government wants to focus on more penetration across regions for these policies. Meanwhile, they are not doing anything to promote the products," Shreyansh V. Shah, a research analyst who covers the financial services sector at StoxBox, said.

On Monday, the GST Council decided to form a group of ministers to look into issues related to the 18% GST on life insurance and health insurance premiums. The panel will submit its report by the end of October, Finance Minister Nirmala Sitharaman said.

The headline indices recovered from early losses and rose 0.7% during the day, led by gains in shares of IT services companies. Shares of LTIMindtree, Wipro, HCL Technologies, and Tech Mahindra were among the top gainers in the Nifty 50 index. The IT services sector could be on the cusp of recovery after enduring a prolonged period of discretionary spending cuts, Motilal Oswal Financial Services said in a report. 

"As we look ahead to the next 2–4 years, the harsh winter appears to be behind us, and the foundations for a sustained revival in the flow of business and smaller deals are being laid," Motilal Oswal said. Shares of LTIMindtree rose to their highest level in eight months after the brokerage raised the target price for the stock by 400 rupees to 7,400 rupees as it expects the company to outperform its large-cap peers. Shares of LTIMindtree ended 3.2% higher at 6,343.35 rupees on the National Stock Exchange.

Motilal Oswal reiterated its 'buy' rating on LTIMindtree due to its superior offerings in data engineering and enterprise resource planning modernisation, positioning it well to capture pre-generative artificial intelligence expenditures. According to the broking firm, the company balances top client relationships with effective new client acquisitions.

Shares of IT companies have been attracting investors recently owing to heightened expectations of an interest rate cut by the US Federal Reserve on Sep 18, a research analyst at Dolat Capital said. Owing to the recent gains, the sector is currently trading at a 15-20% premium to its historical average, the analyst said. However, shares of LTIMindtree are only trading at a premium of 5-7% to their historical average and so have a 5-10% upside potential, the analyst added. 

Pharmaceutical stocks also saw some buying interest, with those of Divi's Laboratories ending 4.9% higher, becoming the top gainer in the Nifty 50. Shares of domestic pharmaceutical companies rose after the US House of Representatives on Monday passed the Biosecure Act, which restricts US federal agencies from doing business with large pharmaceutical companies based in China on the grounds of national security. The move is widely expected to benefit Indian pharmaceutical companies as contract development and manufacturing organisations work that was with China may be diverted to these firms.

The Biosecure Act is a long-term theme, and the impact will be seen in 5–7 years, a research analyst covering the sector said. Among companies that are expected to benefit from this are Divi's Laboratories, Dr. Reddy's Laboratories, and Concord Biotech. Alkem Laboratories and Gland Pharma will also reap the benefits after the construction of their units is completed. However, not much of an upside is expected in pharmaceutical stocks now as this event was priced in when the Bill was first presented, the analyst said.

Shares of media companies were also major gainers, with the Nifty Media index closing 2.7% higher. Investors have bought shares of media companies recently due to their relatively attractive valuations, Bathini of WealthMills Securities said. "During a bull market, money will chase the undervalued sectors," Bathini added. Shares of Hathway Cable & Datacom, Saregama India, and Zee Entertainment Enterprises were the major gainers in the pack.

* Of the Nifty 50 stocks, 33 rose and 17 fell

* Of the Sensex stocks, 22 rose and 8 fell

* On the NSE, 1,898 stocks rose, 837 fell, and 81 were unchanged

* On the BSE, 2,586 stocks rose, 1,352 fell, and 104 were unchanged

* Nifty Media: up 2.7%; Nifty IT: up 1.7%; Nifty Financial Services: down 0.3%

BSE                                               NSE
Sensex: 81921.29, up 361.75 points, or 0.4%       Nifty 50: 25041.10, up 104.70 points, or 0.4%

End

Edited by Rajeev Pai

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