Teji Mandi Market Close - Markets rejoice! But we aren't out of the woods just yet.

The market remains optimistic as many companies begin their operation amidst the nationwide lockdown. After FMCGs, OEMs and auto ancillary now EPC and infra related companies have also started toll collection and road, metro and bridge construction-related activities.

The second big day of gains on the index and after 2 days of losses the nifty has managed to recoup the losses and also build on that gains. Yesterday the nifty did okay while the Nifty bank underperformed but today the nifty did well and the nifty bank did much better. At close Sensex was up 1.34% at 31,863.08 while Nifty surged 1.38% to close above 9,300.

IT stocks further boosted the market. A couple of days ago the IT stocks were under pressure due to mixed results and tweets coming from US President Donald Trump about the ban in US immigration but today we saw big moves for all big IT companies.

Kotak Mahindra Bank (up 8.46%), TCS (up 6.15%) and Infosys (up 5.83%) were the major gainers while Titan (down 4.08%), HUL (down 2.88%) and Shree Cements (down 2.65%) were the major laggards of the day.

Things have turned in the favour of bulls and the stock market is slowly appearing to be a buyer's market. However, investors should be cautious as we are still in a bear market. The Coronavirus has not vanished and the world is still heading towards a recession. Investors are advised to adopt a cautious approach as the next fall could be around the corner.

Pharma: The current rally could be wiped off in a jiffy.

After staying idle for the last 4-5 years, the Pharma sector came alive due to the current outbreak of COVID-19. Quick issuance of Establishment Inspection reports (EIR) and speedy approvals from the US FDA has brought the sector under spotlight. Starting from IPCA Labs receiving an exemption for Hydroxychloroquine export and Cipla's gProventil receiving an approval 6-9 months ahead of expectations, 9 plants have received Establishment Inspection Report (EIRs) in the past month and 12 ANDA approvals so far in April.

However, a closer examination reveals that none of these 9 plants has received OAI (Official Action Indicated). Furthermore, some of the plants that have received OAI classification in the last 6 months, like Aurobindo's Unit-7, or re-inspection, like Alkem's St.Louis facility have not received EIRs. Despite all units of Lupin's Mandideep facilities, being inspected together, only Unit-2 has received an EIR. Unit-1 is still under warning.

Key takeaway:

Out of the queue, approvals are largely due to the acute drug shortage. Currently, 106 compounds are under the shortage list in the US - a six-year high. The US is having a drug shortage so the US FDA has skipped the inspection of plants for now. Once the drugs are replenished they are likely to inspect the plants again.

ICICI Bank: Attractive proposition for buyers

The default of Singapore based oil firm Hin Leong Trading has led ICICI Bank to an unexpected quarter. The bank has $100mn exposure to the trading company. This default once again reminded us of those days of piling up bad assets and the bank's struggle to contain it. Concerns are also being raised about the asset quality to handle the current crisis.

However, a close look suggests that ICICI Bank's exposure to Hin Leong Trading is small at 12bps of advances, with a 50bps impact on net worth assuming 100% is written off.

The bank appears to have managed the current cycle better than the previous one and no large exposures to trouble corporates that have appeared over its book, except a relatively small hit in Karvy broking.

Key takeaways:

ICICI Bank remains one of the strongest banking franchises in India with a strong capital adequacy ratio. It has learned from its previous mistakes and has improved its quality of funding. Retail Deposits are now 60% of total deposits at the bank.

The stock has seen a sharp correction during market meltdown and it is currently trading at 1.1x F21E P/B (Price to Book Ration), offering an attractive risk-reward equation to the buyers.

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