Share Markets Open in Red; Auto & Power Stocks Drag

Thu, 24 Nov 09:30 am

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Asian markets are higher today as Japanese and Hong Kong shares show gains. The Nikkei 225 is up 0.97% while the Hang Seng is up 0.32%. The Shanghai Composite is up by 0.14%. The stock markets in Europe and the US finished lower in the previous trading session.

Meanwhile, Indian share markets have opened the day on a negative note. The BSE Sensex is trading lower by 146 points while the NSE Nifty is trading lower by 54 points. The BSE Mid Cap index opened down by 0.6% while BSE Small Cap index opened down by 0.5%. The rupee is trading at 68.48 to the US$.

Barring Information Technology stocks, all sectoral indices have opened the day in red with auto, power stocks witnessing maximum selling pressure.

Pharma stocks are trading mixed with Divi's Laboratories and Aurobindo Pharma leading the losses. As per an article in The Economic Times, Cipla Ltd is divesting its 16.7% stake in Chase Pharmaceuticals Corporation to a subsidiary of Allergan Plc. As per the deal, Allergan has agreed to pay US$125 million upfront plus potential regulatory and commercial milestones of up to US$875 million to the shareholders of Chase.

With this, Allergan will gain access to Chase's portfolio of drugs that treat Alzheimer's disease. Chase Pharma is a clinical-stage biopharmaceutical company focused on the development and commercialization of improved treatments for neurodegenerative disorders.

In 2014, Mumbai-based Cipla invested US$1.5 million to snap up a 14.6% stake in Chase through the syndicate. In March, the company made an additional investment of US$3 million to fulfill an obligation under the agreement terms.

For Cipla, the divestment comes at a time when the company is looking to spruce up its business in the domestic market. Cipla earns nearly 40% of its revenue from India. The company said in September it plans to draw US$1 billion in revenue from home.

As the M&A activity has been heating up globally, the M&A activity in the Indian pharma space has been on the rise in recent times. At the end of the day, whether the company is able to derive value from the acquisitions and augment the overall performance will be the key thing to watch out for going forward.

Cipla's share price opened the trading day down by 0.5%.

Moving on to the news from stocks in energy sector. As per an article in a leading financial daily, Indian Oil Corporation (IOC) is planning to invest US$5.5 billion to gradually raise the capacity of its smallest refinery co-owned by Iran to 300,000 barrels per day (bpd). This move comes to help meet a surge in demand for refined products.

Reportedly, the project is set to renovate IOC subsidiary Chennai Petroleum Corp.'s Nagapattinam refinery. This will allow Iran to meet demand for refined products in southern India. The first phase of the Nagapattinam project will raise the refinery's output to between 120,000-180,000 bpd. The 300,000 bpd goal will be met at the completion of the second phase.

One must note that India consumed 183 million tonnes of refined products as of last year. According to a 2015 report by the International Energy Agency (IEA), India will require up to 329 million tonnes of oil products annually by 2030.

Moreover, the government is also planning a countrywide switch to the use of cleaner transport fuels compliant with Euro IV emission standards from April and with the Euro VI standards from April 2020.

Meanwhile, IOC is also considering raising the capacity of its Panipat refinery in northern India to 500,000 bpd from the initially planned 400,000 bpd.

In oil & gas sector, government is looking to merge 13 state oil companies to create a giant corporation. The idea is that the creation of such a giant firm will catapult India into a much bigger league. Whether this highly ambitious plan will be successfully executed is a big question.

IOC's share price opened the day down by 0.5%.