Sensex Opens Deep in Red, Pharma Stocks Continue to Slide

Wed, 22 Mar 09:30 am

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Asian stock markets are lower in morning trade tracking losses in Wall Street. The Nikkei 225 is off 2.01% while the Hang Seng is down 1.45%. The Shanghai Composite is trading down by 0.79%. Overnight, the US markets suffered the worst drop in five months on concerns about US president Donald Trump's ability to push through major reforms. Stock markets in Europe also closed their previous session in red.

Indian share markets too have opened the day on a weak note. BSE Sensex is trading lower by 166 points and NSE Nifty is trading lower by 56 points. Meanwhile, S&P BSE Mid Cap and S&P BSE Small Cap are trading lower by 1.5% and 0.6% respectively. Losses are largely seen in auto stocks, metal stocks and pharma stocks.

The rupee is trading at 65.31 against the US$.

Wockhardt share price began the trading day on an optimistic note (up 1.5%) after the company received approval from the US health regulator to market generic version of Wyeth's Zosyn, used for treating bacterial infections, in the American market.

The application for the product to the US Food and Drug Administration (USFDA) was made by the company's subsidiary Wockhardt Bio AG. Wockhardt Bio AG had filed this abbreviated new drug application (ANDA) in collaboration with Fresinius Kabi, Italy (FKAI) where the product development was completed.

In another development, Glenmark Pharmaceuticals USA has received approval from the United States Food and Drug Administration (USFDA) for Clobetasol Propionate Ointment, used for treatment of various skin conditions.

As per IMS Health sales data for the 12-month period ended January 2017, the Temovate Ointment, 0.05% market achieved annual sales of approximately US$ 175.3 million.

Glenmark's current portfolio consists of 113 products authorized for distribution in the US marketplace and approximately 64 ANDA's pending approval with the USFDA.

Glenmark Pharma share price opened the trading day down by 1.1%.

Indian drug companies are facing strong headwinds due to prompt regulatory action of USFDA, likely imposition of Border Adjustment Tax (BAT) and delay in new drug approvals. This comes at a time when US President Donald Trump has stated that pharmaceutical companies will have to cut astronomical drug prices (Subscription Required) and bring manufacturing back to America in order to create jobs.

The Nifty Pharma index fell by over 2% on Tuesday, its biggest single-day loss in three months - after drug firm Divi's Laboratories said the US health regulator has issued an import alert on the products manufactured at one of its units in Andhra Pradesh. While shares of Divi's Laboratories plunged as much as 21% to a 52-week low following the USFDA notice, all other constituents of the index, except Glenmark Pharmaceuticals, sold off in sympathy.

Dr Reddy's Laboratories shares also hit a 52-week low on Tuesday after the company's Duvvada plant received 13 observations which included repeats from a November, 2015 warning letter. Aurobindo Pharma, Sun Pharmaceuticals Industries and Cadila Healthcare each lost over 1-2% in value.

Dr Reddy's share price continues to trade week and has opened the day down by 1.5% on the BSE.

Moving on to news from stocks in investment & finance sector. According to an article in The Economic Times, non-banking financial companies (NBFCs) will demonstrate broadly stable asset quality, but delinquencies could rise over the next 1-2 quarters as notebandi adversely affects collections across asset classes.

As per the global rating agency Moody's, the growth in loans against property has surpassed overall retail credit growth in recent years. However, relatively loose underwriting practices, combined with intensifying competition, will translate into higher asset quality risk for this segment.

Besides, over the past three years, NBFCs have gained some market share in the origination of retail lending. This comes on the back of faster growth exhibited by such entities when compared to banks. This is particularly the case when compared to public sector banks, which face significant challenges on their asset quality and overall solvency profiles.

Bad Loans Inventory Bloats Up

Rising to the menace of bad debts, the Reserve Bank of India is pondering over initiating tough measures against willful defaulters. Gross NPAs have risen at an alarming rate over the past 1 year. While RBI's proactive measure to tighten NPAs is proactive, banks need to take their share of blame. In our recent The 5 MinWrap Up edition, we had highlighted how the banks return ratios had deteriorated due to its profits written off on account of NPA provisions.

On funding, Moody's expects that the NBFCs' funding profiles will broadly remain stable, and funding costs should moderate gradually, given the reduction in systemic rates.

In addition, the NBFCs' profitability and capital, as well as funding and liquidity levels, will stay broadly stable.

Meanwhile, IDBI Bank share price has opened the trading day up by 0.1% after it was reported that the company will raise up to Rs 25 billion through preferential issue of capital to government of India (GoI) and other financial institutions.

The public sector lender has decided to freeze lending and branch expansion plans after massive third quarter loss. The gross bad loan ratio at the bank jumped to 15.16% at the end of December quarter compared to 8.94% in the year ago period.

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