Indian Markets Friday Wrap-Up: Weak Global Cues Hurt India

by: Equitymaster

Persistent selling activity across index heavyweights led the indices to languish deep in the red and close well below the dotted line in today's trade. While the BSE Sensex closed lower by around 451 points (down 3%), the NSE Nifty lost around 127 points (down 3%). Midcap and small cap stocks were also at the receiving end, notching losses of 3% each. Losses were largely seen in metals, banking and oil & gas stocks.

As regards global markets, most Asian indices closed weak today, while European indices have also opened in the red. The rupee was trading at Rs 46.66 to the dollar at the time of writing.

Most pharma stocks closed weak today with Ranbaxy (OTC:RBXLF), Wockhardt and Glenmark leading the pack of losers. Ranbaxy closed lower by 5% today. This was seemingly on back of the news that the company has failed to address its issues with the US FDA.

The US regulator has asked the company to immediately assess the manufacturing practices at its plants that make drugs for the American market. It must be noted that Ranbaxy was already in trouble when two of its manufacturing plants at Poanta Sahib and Dewas were found to be violating the good manufacturing practices standards of the US FDA in 2008.

As if that was not enough, Ranbaxy received another setback when the US FDA issued a warning letter for its manufacturing facility, Ohm Laboratories, in the US in December 2009. Ohm has meanwhile hired the services of PRTM, a global consulting firm, to provide expertise and advice on issues raised by the FDA.

US accounted for around 25% of Ranbaxy's sales in 2008 and is an important market for the company. However, sales from this market have substantially fallen of late due to its impending issues with the US FDA, which have been going on for some time now. Unless the company quickly finds some way to resolve these issues, performance of the US business will continue to remain under pressure.

As per a daily leading business Siemens (SI) and BEML Ltd have entered into an agreement to jointly manufacture and market stainless steel coaches for suburban rail systems. As per the terms of the contract, Siemens will manufacture high-performance bogies and the three-phase IGBT (insulated gate bipolar transistor) propulsion system, which it is already supplying to Railways.

BEML, meanwhile, will make stainless steel EMUs (electric multiple units). Further, the two companies will jointly bid for purchase orders from Indian Railways and suburban train operators such as Mumbai Railway Vikas Corporation Ltd.

It must be noted that in the December 2009 quarter, the company's mobility (transportation) segment witnessed a growth of 40% YOY in sales, with 11% YOY growth in PBIT margins.

Not just that, but the company will also be able to capitalize on the growing demand for EMU coaches in major cities which are expanding their suburban rail networks. However, the stock closed lower by 3% today.

As per reports, the IMF has urged India to begin fiscal consolidation with the next budget, given that India's fiscal deficit has soared due to various stimulus measures introduced to bolster the economy.

It must be noted that India's fiscal deficit surged to 6.2% of GDP in FY09 and the government had pegged this deficit at 6.8% of GDP in FY10. Given that India has started displaying signs of recovery, and is growing at a stronger rate than the developed world, the IMF is of the opinion that it is the right time to withdraw the stimulus.

However, this may not happen anytime soon. This is because the chief statistician, Pronab Sen, has stated that India may defer taking a call on exiting stimulus measures, and the finance minister could take appropriate steps later in the next fiscal year.

Indeed, after the global economic meltdown, and the serious problems that it posed, dealing with such a high fiscal deficit is the next big issue that the government will have to tackle going forward.

Disclosures: No positions