Indian Markets: Short Lived Optimism

Markets moved deeper into the red during the final hour of trade as weakness intensified in heavyweights from the metal, realty and energy sectors. While selling pressure was witnessed across sectors, select auto, banking, software and pharma stocks found favour. As regards global markets, the Asian indices closed mixed, while the European indices were trading in the negative.

The BSE Sensex closed 550 points lower, while the NSE Nifty closed lower by 150 points. The BSE Midcap and Smallcap indices closed in the red, each down 2%. The rupee was trading at 47.31 to the dollar.

Taking cues from their global counterparts, the Indian benchmark indices opened in the positive. However, markets were unable to hold onto their gains and dipped into the negative territory. They continued with their southbound journey till the final hour of trade to close well below the dotted line. The overall market breadth was negative with losers outnumbering gainers by a ratio of 1.7 to 1 on the NSE. While Wipro (up 2%) emerged as a gainer on the BSE Sensex today, Reliance Industries (down 13%) and Tata Steel (down 11%) led the pack of losers.

As per a leading business daily, Wockhardt has challenged the US patent of Stalevo, a new generation combination drug for the treatment of Parkinson's disease. The drug has been developed by Finland-based Orion Corporation and marketed by Novartis (NVS).

Approximately 6.5 m people worldwide suffer from Parkinson’s disease, a disabling neurological condition. The Parkinson's disease market value is set to grow at a CAGR of 10% over the next 5 years to touch US$ 3.1 bn in 2013. Wockhardt has filed an abbreviated new drug-marketing application (ANDA) with the US Food and Drug Administration seeking authorisation to produce and market a generic version of Stalevo in 12.5, 200 and 50 mg strengths.

As per US laws on generic drug sales, a patent owner has to sue a generic challenger within 45 days to force a 30-month stay on the final FDA approval for the application. The stock, along with its peer Dr. Reddy’s, closed higher by 1%. Ranbaxy ended lower by 2%.

Auto sector stocks closed mixed today. Hero Honda (up 2%) and Kinetic Motor (up 4%) were the major gainers, while Ashok Leyland (down 9%), Tata Motors and M&M (each down 7%) ended lower. The softening of steel, aluminium, copper and lead prices are likely to result in improvement of operating margins for auto manufacturers. These being key raw materials for the auto industry can significantly reduce the cost pressure that has been eroding the margins of players in the sector for the past few quarters.

Steel constitutes as much as three-fourths of input costs and the price of this raw material has corrected by 41% on per tonne basis in the past six months. The auto companies had hiked auto prices in the festive month of October and did not resort to price cuts to push volumes. The easing cost pressures and stable prices are likely to stabilise the operating margins of these companies.