Persistent selling mars indices

Mon, 18 Jun Closing

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Indian equity markets began the day's proceedings on a positive note, but soon dipped into the negative on the back of the RBI's decision to keep policy rates unchanged. Thereafter the indices languished in the red as selling activity across heavyweights persisted with no respite visible in the final trading hour. While the Sensex today closed lower by around 244 points, the NSE-Nifty today closed lower by around 75 points. The BSE Mid Cap and the BSE Small Cap, were not spared either as both closed lower by 1%. Losses were largely seen in banking and software stocks.

As regards global markets, Asian indices closed in the green today while European indices have also opened firm. The rupee was trading at Rs 55.91 to the dollar at the time of writing.

Pharma stocks closed in the red today with the key losers being Dr.Reddy's, Ranbaxy and Cipla. As per a leading business daily, with the end of Ranbaxy's 180-day exclusivity on 'Lipitor' (Atorvastatin), the market size has shrunk considerably with new players entering the market. So far, Dr.Reddy's, Mylan, Apotex and Sandoz have launched the generic version of Lipitor. It must be noted that Ranbaxy is said to have garnered revenues of US$ 600 from the sales of this drug so far. Before patent expiry, Lipitor generated annual sales of US$ 13 bn. As Teva, the world's largest generic drug maker, had chosen not to launch the drug, the price erosion was expected to the tune of around 90%. But the extent of price erosion has been higher at 96%. With more players entering the market, Ranbaxy's sales and profits from this drug will shrink. Whether the company will also be able to retain its significant market share remains to be seen.

As per a leading business daily, the Reserve Bank of India (RBI) in its latest policy has decided to keep the interest rates unchanged despite the slowdown in economic growth. It must be noted that India's growth during the January-March quarter had slowed down to 5.3%. As a result of this, there were expectations that the central bank would cut rates to spur growth. Having said that, the RBI's move was prompted by inflation concerns. The May benchmark inflation rose to 7.55%. Although this was below double-digits from last year, it was still highest among industrialised countries and the BRIC group of Brazil, Russia, India and China. A significant portion of the slowdown in growth has been because of supply constraints. Thus, a cut in monetary policy rates or even the cash reserve ratio would possibly not have had much impact on growth unless inflation was under control. What this means is that the ball is now in the government's court and it will have to take the initiative to propel growth by removing structural bottlenecks and introducing reforms.