After yesterday's rally, which was fueled by the US Fed's decision to continue its bond buying program as well as the anticipation of Dr Rajan's maiden monetary policy, Indian equity markets sunk deep into the red today as the RBI raised the repo rate by 0.25%. While the BSE-Sensex today closed lower by 383 points, the NSE-Nifty closed lower by 103 points. The BSE Mid Cap and the BSE Small Cap were not spared either and lost around 1% each. Losses were largely seen in banking, auto and oil & gas stocks.
As regards global markets, Asian indices closed mixed today while European indices have also opened mixed. The rupee was trading at Rs 62.36 to the dollar at the time of writing.
Stock markets across the world had been at the receiving end when the US Fed some months back had announced its intention to withdraw its QE program. But in a surprise decision for the markets, the Fed yesterday indicated that it would continue with its bond buying program. This fuelled a rally in the Indian markets. What is more, the rally was also in anticipation of Dr Raghuram Rajan, the new RBI governor, probably announcing rate cuts to stimulate growth. This was not to be. Dr Rajan, in his maiden monetary policy today, hiked the repo rate by 0.25% to 7.5%. The marginal hike to the repo rate will not do much to change the liquidity scenario in the banking system. In fact even the marginal breather in terms of overnight lending rate (via MSF) is just a temporary measure. However, given the possible inflow of cheap money into the economy, a liquidity tightening mode will certainly arrest asset bubbles.
Pharma stocks closed mixed today. While Lupin, Cadila Healthcare and Sun Pharma found favour, Ranbaxy and Cipla were at the receiving end. The bad news for Ranbaxy just keeps piling on. The company had already been facing serious issues with the US FDA since 2008 for not complying with good manufacturing practices (GMP) norms for its plants at Poanta Sahib and Dewas. Just recently, the US regulator imposed an import ban on another plant at Mohali. And now the latest development seems to be that its manufacturing facility in the US called Ohm Laboratories has also come under the US FDA scanner. Ohm Labs was inspected by US drug regulator in December 2012 and was the only facility from which Ranbaxy had been supplying drugs to the US especially after the recent import ban on Mohali. No doubt this spells bad news for the company whose image has already been considerably tarnished. Plus, inability to resolve issues with respect to this plant is bound to impact revenues from the US as well. The company had managed to garner the first-to-file status for big drugs such as Diovan, Nexium and Valcyte which would have entitled it to 180 days exclusivity. But after the recent spate of troubles with the US regulator, the potential opportunity from these drugs remains under a cloud.
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