Asian stock markets are lower today as Japanese and Hong Kong shares fall. The Nikkei 225 is off 0.5% while the Hang Seng is also down 0.5%. The Shanghai Composite is trading lower by 0.1%. US stocks dropped on Thursday after earnings disappointed and trade jitters escalated over worries that the European Union could slap retaliatory tariffs on goods imported from the United States.
Back home, India share markets opened the day marginally higher. The BSE Sensex is trading up by 67 points while the NSE Nifty is trading up by 16 points. The BSE Mid Cap index opened up by 0.2% while BSE Small Cap index opened the day on a flat note.
The rupee is currently trading at 68.83 to the US$.
Sectoral indices have opened the day on a mixed note with information technology stocks and capital goods stockswitnessing maximum buying interest. While, PSU stocks & energy stocks have opened the day in red.
In the news from the economy. The sharp rise in crude oil prices witnessed during the first three months of the current fiscal year is expected to push India's current account deficit (CAD) to as much as 2.5% of GDP (gross domestic product) during the June quarter.
According to ratings agency ICRA, CAD may come in at US$16-17 billion or 2.5% of GDP for the quarter and for the full year, the gap may scale a six-year high of US$67-72 billion.
CAD is the difference between foreign exchange earned and expended, with imports resulting in an outflow of forex and exports resulting in an inflow.
During the period under review, while India's imports of the usual high-value suspects (gold, silver and other precious metals) actually declined by a whopping 39.6%, petroleum product imports soared 50.1% resulting in an overall higher net import bill.
Factoring in an average crude price of US$ 75 a barrel in FY19 against US$ 56 in FY18 and a 6% rise in net imports, net oil imports are likely to rise to US$98-100 billion in FY19 from US$69 billion in FY18.
According to ICRA, with merchandise exports and imports expected to expand by 10% and 13%, respectively, in FY19, the merchandise trade deficit would widen to US$187-192 billion, from US$160 billion in the last fiscal.
This will have CAD to increase to US$ 67-72 billion or 2.5% of GDP in FY19, from US$ 48.7 billion or 1.9% in FY18.
On a positive side, a weaker Rupee has seen services trade surplus rise at a robust 9.7% in the first two months of Q1. A weaker Rupee and higher crude prices are likely to have supported remittances that would prevent a sharper worsening of the CAD, the report noted.
Moving on to the news from pharma sector. As per an article in a leading financial daily, Drug firm Alembic Pharmaceuticals has received establishment inspection report (EIR) from the US health regulator for its Karakhadi facility in Gujarat.
The company has received EIR from the United States Food and Drug Administration (USFDA) for the inspection carried out at the active pharmaceutical ingredient facility at Karakhadi from 14-18 May 2018.
With this, all of the company's manufacturing facilities for international markets are FDA compliant, the company stated.
An establishment inspection report is given by the US health regulator USFDA on closure of inspection of an establishment.
Speaking of the pharma sector, the BSE Healthcare Index has been on a roller coaster ride in the past few years. The period from 2012 to 2015 saw the index go up more than three times.
Since then it has been a painful ride downwards.
The Roller Coaster Ride of the BSE Healthcare Index
Pre-2015, pharma companies enjoyed a fairytale ride in the US market. Low labor costs, good chemistry skills, along with efficiency, ensured Indian companies could copy innovator drugs to make generic drugs at a fast pace.
The generic business had lucrative margins for all major pharma players. But the party did not last long. In the quest to supply drugs quickly, they compromised on quality at their manufacturing facilities.
No wonder, the US regulatory authority (USFDA) took strict action. Sun Pharma received a warning letter for its Halol manufacturing facility in 2015. It was like a bolt out of the blue. Since then, the downward spiral began and has continued till date.
Lupin, was also issued a warning letter for two of its plants last year.
These regulatory issues coupled with price erosion in US markets has impacted the business of major pharma players.
But the diverse business models of pharma players make it necessary to adopt a stock specific approach.
Alembic Pharma share price opened the day up by 1.7%.
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This article was originally published in English at www.equitymaster.com
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