Sensex Opens Marginally Positive; Tata Steel Down 0.7%

Fri, 27 Jan 09:30 am

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Asian markets are higher today as Japanese and Hong Kong shares show gains. The Nikkei 225 is up 0.37% while the Hang Seng is up 0.06%. The Shanghai Composite is trading up by 0.31%. Stock markets in the US ended their previous session in the red.

Meanwhile, Indian share markets have opened the trading day marginally higher. The BSE Sensex is trading higher by 158 points while the NSE Nifty is trading higher by 32 points. The BSE Mid Cap index and BSE Small Cap index both have opened the day up by 0.5%. The rupee is trading at 68.16 to the US$. All sectoral indices have opened the day on a positive note with Power, oil & gas and PSU stocks witnessing maximum buying interest.

Pharma stocks have opened the day on a mixed note with IPCA Labs and Alembic Pharma witnessing maximum selling pressure. According to an article in The Economic Times, National Pharmaceutical Pricing Authority (NPPA) has slashed the prices of around 33 essential medicines. Thereby bringing down their retail prices by 30-50%.

Reportedly, the government has capped prices of 11 essential drugs while those of 22 such medicines have been revised. These including the medicines used for treatment of cancer, HIV, bacterial infections and acid reflux among others.

As stipulated under the Drugs (Prices Control) Order (DPCO) 2013, NPPA fixes ceiling price of essential medicines of Schedule I. The calculation for essential drugs is based on the simple average of all medicines in a therapeutic segment with sales of more than 1%.

The move aims at reducing the prices of commonly used drugs for critical diseases by expanding the span of price regulation to cover new drugs. The NPPA has so far capped prices of 627 drugs since April last year. The idea is to make treatment of critical diseases more affordable by bringing down the cost of medicines, which constitute a major part of the total health expenditure.

However, this move has been impacting the sales and margins of the companies. Particularly the ones whose drugs fall under the top brands list. Apart from the regulatory crackdowns by the USFDA, the pricing pressures in the domestic market has impacted the pharma companies

BSE Healthcare Index 2001-16

As illustrated in the above chart, Indian pharma has witnessed a sharp plunge in the stock prices (Subscription Required). However, Indian pharma sector has had its fair share of challenges, be it the ban (though, now struck down) of many FDC (fixed dose combination) drugs or the constant encounters faced by it in relation to IP protection. Thus, going forward, whether the union budget 2017 presents some tax sops to all the stakeholders of this sector will be the prominent thing to watch out for.

Moving on to the news from stocks in auto sector, Tata Steel announced that it will acquire 51% stake of Creative Port Development Pvt (CPDPL) to develop Subarnarekha Port at Chaumukh village of Balasore district in Odisha.

In a move that may optimise in-bound and out-bound supply chain for its steel plants, the agreement will address the long-term strategic needs of the company. The current outlay for the acquisition is estimated at Rs 1.2 billion.

The port project proposed at Subarnarekha needs 1215.43 acres of land for the port area and 1565.93 acres for the rail corridor. According to the concession agreement signed originally, the port would have an initial capacity of 10 million tonnes per annum (mtpa) which was to be scaled up to 40 mtpa in 10 years.

Notably, CPDPL in January 2008 had executed a concession agreement with the government of Odisha to develop the Subarnarekha Port. As of date, CPDPL has not started operations. For Tata steel this is the second entry into port development in Odisha. Earlier it had promoted Dhamra port along with L&T, to facilitate movement of material for its plant at Kalinganagar. However, the two partners divested their stake in Dhamra port in 2014 to Adani group for Rs 55 billion.

Tata Steel share price opened the day down by 0.7%.

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