Markets in the red on profit booking

Thu, 15 Jul 01:30 pm

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Indian indices languished in the red on the back of profit booking in heavy weights during the last two hours of trade. Stocks from the FMCG and IT space are trading firm while stocks from the realty and PSU space are trading weak.

The BSE-Sensex is down by 44 points while NSE-Nifty is trading 66 points below the dotted line. The BSE-Midcap index is trading flat while BSE-Smallcap index is trading 0.2% above yesterday’s closing. The rupee is trading at 46.74 to the US dollar.

Pharma stocks are trading mixed with Dr Reddy’s Laboratories and Sun Pharma trading firm while Cadila Healthcare and Lupin are trading weak. As per a leading financial daily, the Union ministry of chemicals and fertilizers plans to bring all essential medicines sold in the country under a price cap. The ministry plans to carry this out by invoking the "public interest" clause under the Drug Price Control Order (DPCO) to take charge of the pricing. If the plans go through then the National Pharmaceutical Pricing Authority (NPPA) will have the final say on the pricing of 354 drugs named in the National List of Essential Medicines (NLEM). The market size of these drugs is Rs 700 bn.

In 2003, the Supreme Court had in a directive had set aside a national pharma policy. Under this, the court had directed the government to formulate appropriate criteria to bring all essential and life-saving medicines under price control. About 6 years ago, NPPA had invoked the public interest provision under DPCO to bring intravenous fluids under price control. By invoking the public interest provision again, the ministry is trying to fix the prices of NLEM drugs in a similar way. However, this may not be easy to implement as the government is trying to bring the medicines under price control without a supportive policy and NPPA will find it difficult to follow a price control criteria not mentioned in the DPCO.

Telecom stocks are currently trading weak led by Reliance Communications (Rcom) and Bharti Airtel. The stock of RCOM is trading weak on the back of news of it possibly having to lower the value of its tower business. Not very long ago, RCOM had announced that it plans to sell the business to GTL Infrastructure and form a combined entity with it. In exchange it would receive some cash and a share in the combined entity. At the time of announcement, the deal between GTL and RCOM was valued at about Rs 325 bn. A leading business daily has reported that since Etisalat is planning to purchase 26% stake in RCom it will have to sell its stake in Swan Telecom, which is yet to begin operations. The catch here is that earlier, Swan Telecom and RCom had signed a 10-year deal which was valued at Rs 100 bn. As part of the deal Swan Telecom would lease towers from RCOM to run its operations. Now, since Etisalat plans to exit that venture (as per TRAI, one company cannot own more than 10% in two telecom operators), the chances of the firm dissolving are there (unless another company takes up Etisalat’s spot). However, with all this happening, it is reported that the valuations of RCOM’s tower business could decrease by about Rs 25 to Rs 40 bn. It may be noted that all these figures are as per various sources and are not disclosed by the company itself. An unnamed official of RCOM has stated that this development would not have a big impact on the deal.