Sensex Trades in Red; Pharma Stocks Drag

Fri, 21 Apr 01:30 pm

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After opening the day on a positive note, share markets in India witnessed volatile trading activity and are currently trading below the dotted line. Sectoral indices are trading on a mixed note with stocks in the realty sector and stocks in the capital goods sector trading in green, while stocks in the pharma sector are leading the losses.

The BSE Sensex is trading up by 81 points (down 0.3%), and the NSE Nifty is trading down by 20 points (down 0.2%). Meanwhile, the BSE Mid Cap index is trading down by 0.1%, while the BSE Small Cap index is trading up by 0.3% The rupee is trading at 64.60 to the US$.

In news from stocks in the pharma sector. Sun pharma share price is under pressure today. The stock fell by as much as 3% in intraday trade today after media reports saying the company received 11 observations from the US Food and Drug Administration (USFDA) for its Dadra unit.

Notably, the US health regulator began a surprise inspection of the Dadra plant in early April. After which the stock tanked to its lowest levels since February.

While inspecting the plant, the US Food & Drug Administration found incomplete lab records at the pharma major's Dadra plant.

These observations include failure to produce appropriate master or control record for each batch of drugs and failure to properly investigate batches that don't meet specifications.

Dadra site is the biggest unit for the company after Halol plant, for supplying drug in the United States.

With these observations, the problem for the company may aggravate as its Halol plant has already been under import alert, which contributed 40% to US sales in FY16.

The Dadra plant, which is the company's second largest USFDA-approved plant after Halol and the estimated revenue generated from the formulations plant stands around US$ 250 million.

Meanwhile, in the first week of current month, the US Food & Drug Administration had said it would lift the import alert imposed on the company's Mohali (Punjab) manufacturing facility and would also remove the facility from official action initiated (OAI) status.

Sun Pharma is the fifth largest specialty generic pharma company in US market and US revenues contribute nearly 48% to its total revenue. With a drop in the US Dollar and observations at the Dadra plant, earnings of Sun Pharma in Q1FY18 may get affected.

At the time of writing, Sun Pharma share price was trading down by 2.2%.

The Indian pharmaceutical industry has come under a lot of regulatory pressure in the past few years. The sector has faced great volatility over the years.

Volatility in the Pharma Sector

We had recently written about the current predicament of Indian pharma companies in one of the premium editions of the 5 Minute WrapUp:

• Over the past few years, risk in the US markets has increased. The US Food and Drug Administration has become stricter on products entering US borders. Surprise inspections have increased and companies are being issued warning letters. This has impacted the business and earnings of Indian pharma players, causing major volatility for the sector.

Give it a read to form a better understanding of the current scenario in the Indian pharma sector.

In news from stocks in the IT sector. The Indian government is raising its voice against protectionist policies by various governments.

The government expressed concern over the move by countries like the US and Australia to tighten their visa regime and pressed for a World Trade Organisation (WTO)-backed global framework to facilitate services trade.

The proposal is aimed at liberalising rules for movement of professionals and other steps to reduce transaction costs to boost services growth.India is pitching for this pact at the WTO as the services sector contributes over 60% to GDP and 28% to total employment. The move is aimed at developing a broader framework governing global services trade similar to a pact implemented by the WTO on goods trade.

The US, under a new executive order signed by US President Donald Trump, proposes to replace the current lottery system for issuing H-1B work visas with a merit-based approach. The country is reviewing its visa programme for foreign workers to curb purported abuse and frauds related to visas.

Similarly, Australia has abolished a work visa program -- 457 visa -- used by over 95,000 temporary foreign workers, a majority of them Indians, to tackle the growing unemployment in the country.

Meanwhile, Finance Minister Arun Jaitley has raised the issue of changes in the H1-B visa regime, stating that the recent executive orders of US President Donald Trump indicate a possible tightening of the visa regime.

In his bilateral meeting with the US Commerce Secretary, in the US, Jaitley outlined the significant contributions the skilled Indian professionals have made to the US economy.

Jaitley expressed hope that the US administration will take this aspect into consideration while taking any decision regarding curbing visas to Indian companies.

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