Volatility plagues Indian bourses

Wed, 6 Jul Closing

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Indian stock market had a rather volatile outing today as they oscillated to either side of yesterday's close. In the final trading hour, selling pressure took its toll and the indices closed just below the dotted line. While the BSE-Sensex closed lower by around 16 points, the NSE-Nifty closed lower by around 7 points. Both the BSE Midcap and BSE Small cap, however, bucked the trend and closed marginally in the positive. While gains were seen in consumer durables and auto stocks, banking stocks were at the receiving end.

As regards global markets, Asian indices closed mixed today while European indices have opened in the red. The rupee was trading at Rs 44.43 to the dollar at the time of writing.

Pharma stocks closed mixed today. While Biocon and Lupin found favour, Cadila Healthcare and Cipla closed in the red. As per a leading business daily, pharma major Cadila Healthcare has received a warning letter from the US FDA for violation of current good manufacturing practice (CGMP) regulations for finished pharmaceuticals at its facility at Sanand in Gujarat. The inspection of the facility was carried out in the latter half of January this year. The US health regulator has given 15 days to the firm to notify the steps it has taken to correct the violations. If Cadila is not able to resolve the matter by then there is the possibility of the US FDA not allowing any more approvals from that plant unless all the issues are resolved. While the contribution from this facility to Cadila's overall revenues is not known, revenues from the US account for around 19% of overall sales.

It must be noted that many Indian pharma players have run into trouble with the US FDA in recent times namely Ranbaxy and Sun Pharma. The former's plants at Poanta Sahib and Dewas were shut down and product approvals from these plants were halted. This considerably impacted Ranbaxy's business from the US. Although Cadila's issues may not be as grave as that of Ranbaxy, quick resolution of the issues put up by the US FDA will be to the benefit of the company.

Steel stocks also closed mixed today. While Tata Steel and Sesa Goa closed firm, SAIL was out of favour. The Indian steel sector may have to contend with some challenging times in the near term at least. This is because prices of coking coal are expected to remain firm over the next few quarters. It must be noted that coking coal is a key ingredient for making steel. Indian steel makers such as SAIL and Tata Steel rely on imports to meet their requirement. Each tonne of steel produced requires almost a tonne of coking coal, mainly imported from Australia. Prices shot up as a result of floods in Australia during the early part of the year. Plus, the ongoing strike at BHP Billiton, which is the world's largest producer of coking coal, is only expected to compound woes further. Although the situation could improve in the second half of this fiscal year, normalization of operations in Australia will play a key role in determining where the coking coal prices head. Demand for steel is also likely to come under pressure. Because of rising interest rates, demand for steel could weaken from the automobile and construction sector as consumers go slow on vehicle and house purchases. Hence, Indian steel companies are likely to face some headwinds in the near term.