Shanghai Surprise: Market does a trapeze on China concerns

iifl25th  June, 2013 : Comments by Amar Ambani, Head of Research, India Infoline 

Shanghai Surprise: Market does a trapeze on China concerns

The benchmark indices closed off the day’s high on Tuesday amid huge volatility. It opened flat, bounced back, but failed to sustain thrice. However, a strong opening in Europe and a recovery in China boosted sentiment. It was enough to power the Sensex 315.01 points and Nifty 96 points during the day. But profit booking at higher levels resulted in the indices ending flat. The Sensex finally closed up 88 points at 18,629 while the Nifty shut shop at 5,609, up 18 points over Monday’s close.

In Asian action, growth concerns and downgrade by marquee global brokerage firms saw the Shanghai Composite plunging as much as 5.8% earlier in the day. It recouped most of its losses to finish the day 0.2% lower. This aided sentiment across Asia and India.

Oil and gas, capital goods, FMCG, auto and realty stocks led the post noon upswing. On the other hand, power, pharma and metals stocks lagged. What’s worrying is there are no signs of the selling pressure in mid-cap and small-cap stocks abating.

The Ranbaxy scrip was in action today after sliding over 7% in early trades. It set a new 52-week low today. However, the stock staged a sharp recovery after the Supreme Court dismissed a PIL seeking a probe against the company for alleged manufacture and sale of substandard medicines. The plea was dismissed for lack of evidence against the company.

In related news, media reports suggest the Central Bureau of Investigation is conducting search operations at Aurobindo Pharmaceutical in relation to the Jagan Mohan Reddy case.

But there is no reason to worry on a fundamental basis, feels Amar Ambani, Head of Research, IIFL. “In consensus with the management, we believe the I-T searches have no material impact on the company’s business. It is one of our preferred picks in the mid-cap pharma space.”


Elaborating on his buy rationale, Ambani expects fundamentals to improve further driven by product approvals and resolutions of disputes by the US Food and Drug Administration. “We expect valuations to catch up on improving outlook, better business mix and tight control at the operating level.”