Stocks drop for second day as Lupin falls most since '08

Stocks fell for a second day in volatile trading, as drugmakers countered advances in automakers before the expiry of the monthly derivatives series on Thursday.

Lupin slumped to a 14-month low after an analyst report said that inspectors from the US Food and Drug Administration had flagged failings at one of the drugmaker's key factories. Rival Cipla slid to its lowest price in 19 months and Sun Pharmaceutical Industries dropped to a two-month low. Maruti Suzuki India surged the most in three weeks, while Tata Motors was the best performer on the Sensex.

Read more from our special coverage on "LUPIN"

• Lupin gets three observations from USFDA for Mandideep plant
• Nifty Pharma index hits 52-week low; Lupin at 18-month low
• Lupin dips on USFDA observations on Goa facility
• Lupin completes $880-mn Gavis purchase

The S&P BSE Sensex dropped 0.3 per cent at the close in Mumbai after changing direction at least 10 times. The index slid the most in a month on Monday before a monetary policy review next week and the end of the monthly derivatives series on Thursday.

The gauge is still set for its best month since October 2013, as Finance Minister Arun Jaitley's pledge to further cut the fiscal gap stoked speculation of an interest-rate reduction and spurred capital inflows. The Reserve Bank of India will review rates on April 5.

"Markets will continue to be volatile as defensive stocks like the drugmakers are under pressure," R K Gupta, managing director of Taurus Asset Management Co, which has $520 million, said by phone from New Delhi. "Traders are cautious before the expiry Thursday and RBI policy next week. March-quarter results and the onset of the monsoon will play a key role for markets in the near term."

Benign observation
Lupin tumbled 6.3 per cent to Rs 1,401.6. The company's Mandideep unit in India was inspected by the US FDA in February, according to a note sent by IIFL to its clients and seen by Bloomberg. Shares of second-biggest drugmaker by market value pared some of their losses after saying observations made by the US Food and Drug Administration on one of its key factories were "minor in nature."

The FDA's observations have been classified as voluntary action initiated, "which is generally benign and does not escalate into warning letter," Morgan Stanley analysts Sameer Baisiwala and Vaibhav Dusad wrote in an investor note, citing Lupin's management. The brokerage maintained its overweight rating on the stock with a 12-month price target of Rs 2,133.

Rivals Sun Pharmaceutical Industries, Cipla and Dr Reddy's Laboratories were among the worst performers on the Sensex. A gauge of 63 health-care companies tumbled 2.6 per cent, the lowest level since January 2015, and was the biggest decliner among the 13 sectoral indexes compiled by the BSE.

Foreign inflows have picked up, buoyed by easing of volatility in the global markets and prospect of lower borrowing costs. Foreigners have bought $2.7 billion of shares since March 1. The inflows helped fuel an eight per cent gain in the Sensex so far this month, the best performance since October 2013.

The Sensex has fallen 4.7 per cent this year and trades at 15.2 times 12-month projected earnings. The MSCI Emerging Markets Index is valued at a multiple of 11.6.