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Mineral bounty, global pharma & more... - Views on News from Equitymaster
 
 
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  • Jul 8, 2008

    Mineral bounty, global pharma & more...

    Weak global markets
    Stockmarkets around the world continue to reel under shocks that first began with the subprime crisis in August last year and were followed by rising inflation on account of soaring crude and food prices. The US stock markets by definition have entered a 'bear' phase as the indices have plunged by 20% from their peak. The credit crisis set in motion the US economy's slow and painful fall into a recession. Add to this the prospect of declining profits of corporates around the world, rising inflation and interest rates and the scenario looks grim indeed. Oil prices continue to touch new highs fuelled by geopolitical tensions in the Middle East paving the way for disruptions in supply and speculations in the oil market.

    Against a backdrop of rising inflation and interest rates, corporates will have to brace themselves for a likely slowdown in net profits. And there could be added pressure on companies to hike wages especially if the latter is not growing in tandem with inflation. This would most certainly dampen profitability of companies in the future.

    These are testing times for central banks around the world and most of them have accorded priority to bringing inflation under control by raising interest rates at the cost of their respective economies facing a slowdown in growth. Case in point is the interest rate hikes undertaken by the Reserve Bank of India (RBI) and the European Central Bank. While the US has not gone in for a hike in interest rates till now, it certainly seems to have halted its rate cutting exercise for the time being.

  • Also read - Emerging markets: Lessons from the past

    Global pharma's changing strategy
    Global pharma companies continue to be beset by a host of problems. On one hand, research costs are rising with nothing much to show for in terms of new product launches. And on the other, rising emphasis by governments across the world to go in for generics in a bid to reduce healthcare costs has eroded their profits. The fact that the regulatory environment is getting complex and the US FDA has become very stringent in approving new drugs has made matters even worse.

    In such a scenario, global innovators are following the inorganic trail by either acquiring promising molecules or small biotech firms or generic companies. With Novartis successfully managing both a branded business and a generics business (Sandoz) and the Japanese innovator Daiichi acquiring Ranbaxy, buying out generic companies seems to be the latest fad that is likely to gain more prominence in the future.

    Rich in minerals
    India's mining industry is expected to touch around US$ 30 bn in the next four years accounting for around 2.5% of the country's GDP. The country is ranked among the top ten globally for having abundant deposits of iron ore, coal, bauxite, mica and manganese amongst others. India is rich in iron ore reserves and exports account for as much as 50% of its total iron ore production. These exports have increased from 31 m tonnes (MT) since 2000-01 to almost 90 MT in 2005-06, a compounded annual growth rate of almost 24%, with China accounting for 50% of India's iron ore exports. Because of this abundance, the Indian steel industry has an inherent long-term advantage over the international players and need not worry of regular raw material supply.

  • Also read - Steel: Ceding the iron ore advantage?

    This is in stark contrast to coal deposits. Despite having strong reserves, India still has to import coal on account of delays in project commissioning, inadequacy of policy framework, inability to create appropriate infrastructure among other reasons.

     

     

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