Indian equities pummeled by gloomy local and global leads

After the gap down opening, Indian stock markets have failed to demonstrate any kind of recuperation as selling pressure got intensified in the afternoon session of trade. The European markets opened on a daunting note as investors shunned riskier assets on mounting concerns that the euro zone debt crisis is spreading, to much larger countries like Italy and Spain, stoking fears that the aid from international lenders may not be enough to stop a broad deterioration of the European economy. Markets in Asia too prolonged their somber run, undermining mood of local investors. Apart from the gloomy global leads, plenty of developments from the domestic front like the discouraging IIP numbers, weaker than expected Infosys quarterly earnings numbers and muted guidance and of course the much anticipated Cabinet reshuffle did the rest of the damage by spooking sentiments. Meanwhile, news reports suggested that EGoM on oil under recoveries has been deferred. Furthermore, finance minister Pranab Mukherjee stated that the monthly IIP figures not forming a trend yet and the government needs to do critical analysis of where the numbers are headed. On the sectoral front, investors squared off hefty positions from the Information Technology counter post Infosys' first quarterly earnings announcement. The rate sensitive pockets like Realty, Auto and Bankex too continued to bear the brunt of profit booking. However, some gains in the defensive - FMCG, PSU and Oil & Gas counters were evident. However, the broader markets traded with moderate losses of around half a percent point, much less than their larger peers. The bourses plummeted on strong volumes while the market breadth on BSE was in favor of declines in the ratio of 933:1577 while 108 scrips remained unchanged.

The BSE Sensex is currently trading at 18,518.90 down by 202.49 points or 1.08% after trading as high as 18,589.19 and as low as 18,460.12. There were 7 stocks advancing against 23 declines on the index.

The broader indices were trading with moderate losses; the BSE Mid cap index eased by 0.51% and Small cap edged down by 0.40% respectively. 

On the BSE sectoral space, FMCG up 0.36%, PSU up 0.15% and Oil & Gas up 0.06% were the only gainers, while IT down 3.15%, Teck own 2.52%, Realty down 1.80%, Auto down 1.63% and Capital Goods down 1.43% were the major losers on the index.

The top gainers on the Sensex were ONGC up by 0.84%, Tata Power up by 0.77%, Sterlite up by 0.67%, HUL up 0.48% and ITC up 0.42%.

On the flip side, Infosys down by 4.76%, DLF down 3.12%, Tata Motors down 3.09%, Wipro down 2.44% and L&T down by 1.88% were the major losers on the index.

Planning Commission deputy chairman Montek Singh Ahluwalia on July 11, authorized allowing 100% foreign direct investment (FDI) in the pharmaceutical sector. He said, 'I endorse the view that there should be no case for rollback from 100% FDI, while addressing a press conference.

Earlier, the Department of Industrial Policy and Promotion (DIPP), a nodal agency responsible for FDI-related matters, had also raised concerns over the growing dominance of multinationals in the sector. On the other hand, domestic pharma companies, headed by the Indian Drug Manufacturers Association and Indian Pharmaceutical Alliance, had also raised concerns that the takeover of Indian companies by foreign firms could lead to a situation of over-pricing of drugs and marginalization of homegrown firms.

To tackle the situation, an inter-ministerial panel comprising senior officials from the health ministry, department of industrial policy and promotion, the pharmaceuticals department and the finance ministry was tasked with the consent of suggesting measures that could help retain India's competitiveness. And the panel on July 5 recommended that the FDI cap for brown-field pharma projects, which would include expansion and mergers and acquisitions (M&As), be cut to 49%, while the ceiling for green-field ventures be retained at 100%.

'I don't think there is any move anywhere to prevent expansion of existing 100% foreign-owned pharmaceutical companies or green-field investment by foreign companies,' Ahluwalia said.

Following the inter-ministerial panel's recommendation, the government had set up a group under Planning Commission member Arun Maira to look at the ideal policy regime for the sector.  On this matter, deputy chairman said 'The expert group appointed under Arun Maira will see whether there is any problem relating to merger and acquisition rules of pharmaceutical companies in the country.'

In 2008, Japan's Daiichi Sankyo acquired a majority stake in Ranbaxy Laboratories, whereas in 2010, Abbott Laboratories acquired Piramal Healthcare's domestic formulation business. With the growing dominance of MNCs into the sector, industrial organizations backed by domestic companies are seeking limitations on M&As arguing that India would turn into a contact manufacturing center and would lose its advantage, also other concern is that prices of medicines will increase due to lack of generics and rise of imported patented drugs.

In 2001, when the government issued a press note allowing 100% FDI under the automatic route, it had put in place two conditions related to transfer of technology and investment in manufacturing, said Indian Pharmaceutical Alliance secretary general D G Shah. 'Both conditions have not been met. On the contrary, what we are seeing is several companies are shutting down manufacturing facilities in India, are winding up R&D and are importing patented medicines while not producing drugs or vaccines for the local market. If this continues, we will only be involved in contract manufacturing,' he added. The S&P CNX Nifty is currently trading at 5,555.05, lower by 61.05 points or 1.09% after trading as high as 5,580.25 and as low as 5,535.45. There were 11 stocks advancing against 39 declines on the index.

The top gainers of the Nifty were Sterlite up by 0.89%, Power Grid up by 0.60%, ONGC up by 0.60%, HUL up by 0.60% and Tata Power up by 0.60%.

Infosys down by 5%, DLF down 3.22%, Tata Motors down 3.03%, Wipro down 2.55% and L&T down 2.14% were the major losers on the index.

Asian markets are exhibiting somber trends as Shanghai Composite got clobbered by 1.76%, Hang Seng plunged 2.17%, Jakarta Composite sank 1.07%, KLSE Composite slid by 0.54%, Nikkei 225 plummeted 1.43%, Straits Times shaved off 1.28%, Seoul Composite got butchered by 2.20% and Taiwan Weighted got pulverized by 2.02%.

The European markets have opened on a bleak note as France's CAC 40 plunged 1.82%, Germany's DAX nosedived 2.33% and London's FTSE plummeted 1.29%

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