Budget 2008, pharma & more... - Views on News from Equitymaster

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Budget 2008, pharma & more...

Feb 13, 2008

At present while global happenings in the financial markets are wielding a strong influence on the Indian stock market, an important domestic event namely the Union Budget 2008 is also expected to set the tone for the movement of the Indian indices. As far as the Budget is concerned, the government has to lay emphasis on improving infrastructure, education and healthcare and reducing the fiscal deficit. While tax revenues have been buoyant, the government needs to get a hold on its expenditure if it wants to reduce the burden of fiscal deficit. A fiscal deficit is not a bad sign, if the government is utilizing the borrowings for productive purposes. Given the fact that India faces huge constraints on the infrastructure side, the focus has to be on development of roads, airports, highways, and curbing power shortages. This is more so if the current level of GDP growth has to be sustained. While the strong forex reserves position and GDP growth rate has ensured that India does not re-visit the 1991 crisis again, the government needs to understand that prudent utilisation of resources will go a long way in charting and sustaining India's economic health in the future.


  • While pharma stocks in India have been facing a lull in the past couple of years backed by declining prices, generic competition and regulatory risks, pharma stocks in the US have managed to catch the investors' attention in the past one year reinforcing the sector's status as a defensive play. Thus in the US, while unemployment is rising, oil prices are firm, housing sector is facing a deep slump and consumers are likely to cut spending in a variety of areas, healthcare spending will still remain essential. As in India, US pharma stocks were also in the dumps earlier owing to ballooning R&D expenditure, weak pipelines, patent expiry of blockbuster drugs, surging generic competition and patent lawsuits - concerns which have still not abated. But given the battering that these stocks had received, many of them have started to look attractive at the current prices.

    On the flip side, the FDA has become more stringent in approving new drugs in wake of the 'Vioxx' debacle and the 'Avandia' controversy. In fact in 2007, the FDA approved 69 drugs, a 26% drop from 93 approvals in 2006. The research firm IMS has estimated US$ 20 bn worth of drugs (in terms of innovator sales) to go off patent in 2008. While this is a bane for the global innovator companies, it certainly represents a boon to the Indian pharma industry.


  • The US economy continues to be bogged down by recession fears as falling house prices, job cuts and rising energy and food prices have taken a toll on the American consumer. The results declared by individual retailers last week were not enthusing as a majority of them reported falling sales and this week's data on the retail sales in January is expected to give a clearer picture on how adverse the impact of the above mentioned factors is on consumer spending.

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