GOLDEN RULES FOR TRADING

Pharma Stocks Outlook for the week – 23 to 27.11.2015 Range bound; Dr Reddy's may rebound from lows

Pharma Stocks Outlook for the week – 23 to 27.11.2015
Range bound; Dr Reddy's may rebound from lows
  www.rupeedesk.in )

Stocks of pharmaceutical companies are seen range-bound next week as market is likely
to be volatile due to expiry of November derivatives contracts on Thursday. Pharma
being perceived as a defensive sector, there could be some buying interest in the stocks
given the weak broader market sentiment. However, a number of companies are facing
regulatory issues and lower sales in the US, which may limit any major upside.

Dr Reddy's Laboratories has been sailing through troubled waters due to the warning
letter issued on its three units by the US Food and Drug Administration, a US law firm
investigating allegations of false or misleading disclosure of financial performance, and a
US court asking it to temporarily stop sales of Nexium generic in the that country. These
factors had led to the stock falling to a nine-month low of 3,137.85 rupees on Thursday.

Another company that will be eyed is Sun Pharmaceutical Industries. Sun Pharma is said
to have made inquiries with merchant bankers for a bond issue worth 10 bln rupees.
There was no confirmation from the company on this. Also, Sun Pharma's subsidiary
Taro Pharmaceutical Industries' $250-mln investment into wind energy is seen weighing
on the stock.

Taro Pharma intends to use the investment to reduce its tax liabilities. The project would
be implemented by Suzlon Energy, in which Sun Pharmaceutical Managing Director
Dilip Shanghvi and Executive Director Sudhir Valia have substantial stake. The use of
shareholders' money for a project that is not the company's core business is seen as a
negative. According to Economic Times, Jefferies believes that the development is a
negative due to the related-party transaction--the involvement of Suzlon Energy--which
according to Taro Pharma was picked up after an independent bidding process.