Selling pressure erodes gains

Fri, 17 Aug Closing

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Indian equity markets began the day's proceedings on a strong note today and maintained this momentum throughout the morning session. However, post noon profit booking took its toll as a result of which the indices lost almost all of their gains. The final trading hours saw buying activity resume ensuring that the indices closed above the dotted line. While the Sensex today closed higher by 34 points, the NSE-Nifty today closed higher by 3 points. Both the BSE Mid Cap and the BSE Small Cap closed marginally into the positive. Gains were seen in IT and FMCG stocks while stocks from the metal and Oil and gas sectors were at the receiving end.

As regards global markets, Asian indices closed mixed today while European indices have also opened mixed. The rupee was trading at Rs 55.69 to the dollar at the time of writing.

Pharma stocks closed mixed today. While Ranbaxy and Dr.Reddy's found favour, Sun Pharma and Cipla closed into the red. As per a leading business daily, Ranbaxy is likely to rake in more revenues and profits from the generic launch of the drug Actos. This drug is for the treatment of type 2 diabetes and is from the product stable of Japan's Takeda. According to IMS Health, the drug had generated total US sales of about US$ 2.7 bn last fiscal. Takeda had granted licences for the generic version of Actos to Watson, Ranbaxy, Mylan Inc and Teva Pharmaceuticals. The four companies were to launch their versions of the drug today, when Actos goes off patent. All the 4 players were to share marketing exclusivity for 180 days. However, the US FDA has not granted permission to Watson to launch its generic version. This means that now only 3 players will share the exclusivity period for this drug consequently increasing the potential to garner more revenues and profits for each player including Ranbaxy. The company had already benefitted considerably from the 180 day exclusivity for the cholesterol drug Lipitor (largest selling drug in the world before patent expiry). And more such exclusivity periods for blockbuster drugs will only bolster revenues and profits going forward.

As per a business daily, the Finance Ministry is re-assessing the capital needs of public sector banks (PSBs). This may lead to an infusion of Rs 50 bn more, over and above the Rs 158 bn promised in Union Budget 2012-13. The higher capital infusion is expected to ensure that these banks do not face rating downgrades. State Bank of India (SBI) in particular, could get about Rs 40 bn more to expand its Tier-I capital. This should help it secure an upgrade from Moody's, which would have a positive effect across the banking sector. It may be recalled that in 2HFY12 Moody's had cut SBI's credit rating to below investment grade. The Finance Ministry is working to ensure that India's ratings are maintained at the investment-grade.

In addition, the government has to capitalise PSU banks to cushion them from increasing non-performing assets (NPAs), and also to provide for credit expansion. The government provided capital of Rs 195 bn to the PSBs in FY12, against budget estimates of Rs 60 bn for the year. Bad loans have grown at more than double the pace of credit growth in the economy. NPAs grew by 43.9% in FY12, far outpacing credit growth of 16.3% YoY during the same period. Banks' gross NPA ratio rose to 2.9% at the end of March, 2012, up from 2.4% in March, 2011. Net NPA ratio rose to 1.3% of loans, as against 0.9% in FY11. PSU banks have borne the maximum brunt of slippages in restructured assets. Barring SBI, most PSU banks closed in the red today.