Midcaps not in favour today

Thu, 6 Jan 01:30 pm

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The Indian markets continued to fall deeper into the negative territory during the previous two hours of trade. Currently, stocks from the IT sector, being the sole gainers, have managed to find favour. Realty, FMCG and capital goods stocks are amongst the top losers at the moment.

The BSE-Sensex is currently trading down by around 130 points (down 0.6%), while the NSE-Nifty is down by about 35 points (down 0.6%). Stocks from the midcap and smallcap spaces have mirrored the performance of their larger counterparts as the BSE Midcap and BSE Small cap indices are trading lower by 1% and 0.6% respectively.

Pharma stocks are trading mixed with Sun Pharma and Elder Pharma trading firm, while Cipla, Wockhardt and J B Chemicals are trading in the red. American drugmaker Merck has terminated its two-year-old research alliance with Ranbaxy Laboratories, India's largest drugmaker, to develop anti-bacterial and anti-fungal medicines. Conflict of interest between Merck and Daiichi Sankyo, the Japanese drug multinational that holds majority stake in Ranbaxy, could have triggered the decision. While Ranbaxy is a generic company with little focus on discovery of original molecules, Merck and Daiichi Sankyo are innovation driven pharmaceutical companies.

The strategic product development agreement between Merck and Ranbaxy, signed in May 2008, was expected to result in the discovery of new anti-infective medicines. Ranbaxy had announced that it had received an undisclosed amount as upfront payment and could receive more than US $100 m as milestone payments. However, with the deal terminated Ranbaxy now has only two programmes that can be categorised as new drug research, one in the area of anti-malaria and the other a joint research and development programme with foreign drug multinational GlaxoSmithKline.

Food inflation numbers for the week ended December 25 were announced today. India's food inflation figure rose to 18.3% as compared to 14.4% during the previous week. The key reason for this hike was the high onion prices coupled with milk getting dearer. Fuel inflation climbed to 11.6% and was at similar levels of last week. As for inflation measured through the wholesale price index, it rose to 7.5% in November as compared to last year figure. In the preceding month, the figure stood at 8.6%.

As per the Prime Minister's Economic Advisory Council (PMEAC), inflation figure close to levels of 4% (WPI) is considered as comfortable. And therefore considering that the inflation figure is showing no significant signs of cooling down, a significant hike in interest rates can be a possibility in the future. As per the PMEAC, the rate hike by the RBI will depend on the price behaviour during the months of December and January.