Biotech's Allure - Business Today

The AV Birla Group is reportedly considering a foray in biotech. What is it about the sector that's drawing India's big industrial houses like the Tatas, Reliance, and now the Birlas?

Reliance and Tatas are already going the whole hog at it. And it is only time before the AV Birla Group comes out with a concrete plan to enter the sunrise biotechnology sector. However, indications are that the Rs 30,000-crore conglomerate is looking for acquisitions in the biotech industry both in India and in the US.

Kumar Mangalam Birla, Chairman of the Aditya Vikram Birla Group, has been quoted as saying that the group is on the lookout for an opportunity in the biotech space. "India has an enormous competitive advantage and a resource pool in intellectual property," he had said.

Reports indicate that the AV Birla group has been in talks with two Hyderabad-based biotech companies, Bharat Biotech and Shantha Biotechnics. It's also talking to two US-based companies, Biosyn Biotech and Fortuna. Bharat Biotech and Shantha Biotechnics are closely-held companies, and have apparently been looking at various options to raise funds.

Recently, Tata Group Chairman Ratan Tata had said that his group is interested in the biotech sector. "In the area of biotech applications in the pharmaceuticals industry and in the area of drug research, there is considerable opportunity for us, which we are indeed looking at today," Tata had said.

In the biotechnology field, Tata Industries now has a small stake in the Bangalore-based Avestha Gengraine, a biotech firm founded by Villoo Morawala Patell. In fact, last year, when an Indian company developed the world's first recombinant human insulin, the Indian government sanctioned a flurry of biotechnology parks, and several research and development agreements were announced. With a new national biotechnology policy on the way, India has begun to look beyond the software and IT enabled services sectors at a new growth point for the country's economy: biotechnology and pharmaceuticals.

India's biotechnology sector is currently made of four major segments: bio-industrial products such as enzymes and bio fuel; bio-agricultural products such as genetically modified seeds, bio-fertilisers and bio-pesticides; bio-services such as contract research, contract manufacturing and clinical trials; and bio-pharmaceuticals. Bio-pharma covers vaccines, therapeutics, diagnostics and animal health care, and has emerged as the largest segment, thanks in part to strong clinical and research capabilities developed through bio-services.

In October, plans to set up special economic zones (SEZs) for biotechnology, including biotechnology parks and free trade warehouse zones, were announced. Biotech parks sanctioned include a Rs 100-crore venture in West Bengal, which will include a research centre for traditional medicine. Having identified IT solutions for the life sciences sector as another big opportunity for the country, the government has also sanctioned a bio-IT park, aimed as a geographic hub for bioinformatics, bioengineering, and pharmaco-genomics companies and research institutes.

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Positive outlook for Infosys, Satyam

SBI (Rs 663.9): The expected short-term weakness in the stock materialised during the week. After dropping to a low of Rs 653, the stock closed marginally higher on Saturday. A close above Rs 690 would have positive implications and would help the stock move to the target zone of Rs 725-730. A close below Rs 640 would have negative implications. Hold with a stop-loss at Rs 640 and fresh exposures may be considered on a close above Rs 686. A close below Rs 640 would warrant dilution of holdings.

Reliance Ind (Rs 555): The stock managed to comfortably hold above the bearish trigger level of Rs 520 and also closed above the positive trigger level of Rs 540. This imparted strength and helped the stock post a sharp gain on Friday. The near-term outlook remains bullish and the stock appears on course to move to the target zone of Rs 575-580 that was mentioned last week. Hold with a stop-loss at Rs 530 for a portion of the holding and at Rs 520 for the balance. Partial profit-booking may be considered on a move to the Rs 575-580 range.

Tata Steel (Rs 353.3): The stock dropped to the first support zone at the Rs 340-345 range. Though it did breach the stop-loss level of Rs 348 during the intra-day trading on Friday, it managed to close above this level. The short-term outlook appears bearish and a close below Rs 343 would be a sign of weakness. Short positions may be considered on a close below Rs 343, with a price target of Rs 305-310. Stop-loss for short positions may be placed at Rs 358. A close above Rs 359 would impart strength and the stock could rally to the Rs 370-372 range subsequently.

Satyam Computer (Rs 465): The share price was confined to a narrow trading range last week. It, however, managed to hold above the stop-loss level at Rs 423. The near-term trend is bullish and the share price appears on course to move to the target zone of Rs 485-490. Remain invested with a stop-loss at Rs 423. Fresh long positions may be considered on a close above Rs 470, with a stop-loss at Rs 440.

Infosys (Rs 2237.2): The outlook is bullish and the share price could move to the Rs 2380-2400 band in the near term. Long positions may be considered on price weakness, with a stop-loss at Rs 2170. Shareholders may remain invested with a stop-loss at Rs 2120. Exposures may be enhanced on a close above Rs 2300, with a close stop-loss in place. The positive view would be negated if the share price closes below Rs 2100.

Follow-up

Cipla (Rs 288): The stock managed to hold ground and recorded a modest gain for the week. The near-term outlook remains bullish. The stock appears on course to move to the target zone of Rs 300-305. The positive view would be valid as long as the stock holds above Rs 270.

Investors may hold with a stop-loss at Rs 270 while fresh exposures may be considered on a move above Rs 296, with a stop-loss at Rs 280. A close below Rs 269 would blunt the positive outlook and would warrant dilution of holdings. A close above Rs 325 would confirm that the stock is in a long-term uptrend and exposures may be enhanced subsequently.

Arvind Mills (Rs 139.1): The stock was confined to a narrow trading range during the week. The long-term uptrend would resume on the completion of this corrective phase. As observed last week, investors who are comfortable with a "buy-and-hold" investment strategy may get opportunities to exit at the Rs 190-200 range.

Existing shareholders may remain invested with a stop-loss at Rs 120. Fresh exposures may be considered on price weakness, with a stop-loss at Rs 120. A close below Rs 120 would be a sign of weakness and would warrant dilution of holdings. Exposures may also be enhanced on a close above Rs 145, with a close stop-loss in place.

Source : B. Krishnakumar http://www.thehindubusinessline.com/

Hindu Businessline Recommendations

Buy  >> Nilkamal Plastics, Vesuvius India, Union Bank Of India
Sell  >> EIH, Bajaj Auto
Hold >> Tata Power

Weekly Technical Analysis

Markets are really in extremely overbought territory and also have been relatively stagnant, this last week. Still, with lot of bullishness in the air, though.

Positives

• All indicators maintaining their uptrend.

Negatives

• None in particular. Still extremely Overbought.
• MACD threatening to move down.

Analysis

Last week was an indecisive week. With a few down and few up days. But we did close the week near the high of the week, which is very encouraging. Markets have had Only upside for nearly 3-4 weeks now. And for any healthy upside, a good Correction to the downside Must exist. Always remember, the demand and supply curve has to go up and then come down. It cannot go up all the time.

Theory is, where would you get the buyers from. After a point, the buyers are exhausted and sellers take control. If not for long, at least for sometime. And hence, we would not get too excited about going long at this point. Better to wait for a day or two to see what the market thinks should be the direction for the rest of the week. Before jumping into any of the stocks. Also if you notice, a flat Week means, losing steam. Hence, it adds to the cautious attitude one must possess in the following week.

Outlook

We would still hold our stance from last week. We are bullish and it is Only advisable to trade from the Long side. Definitely Short, if we break couple of major supports. One being the Trend-line(Lower), which is where we are hanging right now. And the other being a major support around 6630. As long as these critical levels are intact, go LONG.