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Stockmarkets, inflation and more...

Apr 1, 2008

  • Indian stockmarkets continue to dance to the tunes of their global counterparts as was amply demonstrated in yesterday's trading session, which saw the BSE-Sensex shed nearly 725 points (down 4%) following the weakness in the US and European markets. In fact US markets were hampered on Friday following a profit warning from JC Penney, a large retailer in the US despite encouraging readings on personal incomes, which registered an increase. Having said that, consumer spending rose just 0.1%, the smallest rise since September 2006. Meanwhile, the Federal Reserve continues to be active in bailing out the financial system from its worst ever crisis and had announced that it would make an additional US$ 100 bn available to cash-deficient banks during the month of April, as part of its ongoing plan to help unfreeze the credit markets. This has, however, not insulated the US markets from bouts of volatility and this nervousness has had an effect on other markets across the globe as well.

  • India's inflation surged to 6.68% for the week ended March 15, 2008 marking a 13-month high. This is following 5.92% that was recorded a week earlier and has now dampened chances of the RBI softening interest rates. The spike has been attributed to rising food prices, which besides afflicting India has weighed heavy on world economies as well. A spurt in steel prices too has contributed to the rise in India's inflation. This is expected to put pressure on the central bank to suggest some monetary adjustments so that the impact of rising prices is lowered on consumers. Already the government has announced measures to reduce import duties on certain products. Whether this will cool down inflation remains to be seen. Meanwhile, given the firm crude oil prices, the pressure on domestic energy prices is also expected to increase, thus having the potential to increase inflation at a higher rate going forward.

  • R&D efforts of global pharma companies received a setback last week when it was reported that the cholesterol reducing drug 'Vytorin', a combination of Merck's 'Zocor' and Schering Plough's 'Zetia', was not found to be more effective than cheaper generic versions. These findings have been published after two years of study on the drug, which has elicited considerable criticism. 'Vytorin' is a blockbuster drug having generated revenues to the tune of US$ 5 bn. Global innovator companies are facing increasing pressure in recent times given the patent expiries of their blockbuster drugs resulting in nearly 90% erosion in prices and drying research pipelines. Many of them are resorting to a host of strategies, which include extending the patents on their blockbuster drugs, in-licensing molecules from small research companies, acquiring companies with a promising research pipeline and focusing on biotechnology, which is a very niche and highly lucrative field. The US FDA has also been stringent in approving new drugs in light of the 'Vioxx' debacle (Merck had to withdraw the drug from the market) and the controversy surrounding anti-diabetic drug 'Avandia', which has been associated with increasing the rate of heart attacks. Thus, the going may not be that easy for domestic pharma companies whose R&D programmes are still in their nascent stages.

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