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Freddie, Fannie, pharma and more... - Views on News from Equitymaster
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  • Jul 15, 2008

    Freddie, Fannie, pharma and more...

    Freddie and Fannie cast their net wide
    The predicament faced by the US' largest mortgage financiers Freddie Mac and Fannie Mae continued to have a dampening effect on markets around the world with most of the Asian indices ending in the red on Monday. The weight of the subprime crisis was too much to bear for these two institutions and last week saw the stock of these two companies plummet by 18% and 16% respectively in a single day. In the latest development, the Bush administration has announced plans to bail out these institutions by asking the Congress to approve a package that would infuse a staggering sum of around US$ 300 bn into them. After the unraveling of the subprime crisis, this is the second time that the government has come to the aid of financial institutions, the first one being its involvement in bailing out Bear Sterns out of trouble. And this has again brought to the fore the extent of the credit crisis, which appears to be much deeper than what was envisaged earlier.

    Not surprising then, that the Asian markets reacted negatively to this development given that a majority of them rely on exports to the world's largest economy. As if this is not enough, high oil prices and steep inflation is only adding more fuel to the fire.

    Food woes continue; this time it is oilseeds
    Insufficient rainfall is expected to render India vulnerable when it comes to oilseeds. India is the world's second largest buyer of oilseeds after China and a spell of dry weather in the biggest growing regions of the country means that it will have to import the same. India of late has seen its inflation surge within a striking distance of 12% and needs to boost cooking oil supplies to temper prices. As per reports on Bloomberg, increased imports of oilseeds by India will support prices of palm and soybean oils, which already reached record levels last year. Statistics further reveal two not so enthusing facts - one is that India's edible oil imports rose to 13% in the eight months ended June as compared to the corresponding period last year; the second one being the fact that the June-September monsoon rains, which account for four- fifths of the nation's annual rainfall, was 20% less than normal in the week ended July 9. This certainly does not bode well for the Indian economy, which is also reeling under high oil prices.

  • Also read - Food Vs Fuel: The argument continues...

    Ranbaxy is making headlines...
    ...but for the wrong reasons this time! The pharmaceutical giant was on the front page of leading news dailies earlier when it announced that the company's promoters are selling their stake to the Japanese pharma company Daiichi for a sum between US$ 3.4 bn to US$ 4.6 bn. This time, Ranbaxy is in the news on allegations made by the US FDA that the company has forged crucial data in a bid to get marketing approvals for its drugs in the US market. Readers would do well to recall the fact that the company was at the receiving end last year when Ranbaxy's Paonta Sahib facility was not complying with the standards set by the US FDA. This had led to a shut down of the plant and a delay in the launch of some of its products in the US, including 'Pravastatin 80 mg' for which Ranbaxy had a 180-day exclusivity.

    The US FDA's allegations may not go down well with the new owners of the company, Daiichi. While Ranbaxy has denied these allegations, in the event that they are proven to be true, then it will be detrimental to India's largest pharmaceutical company, for which the US contributes around 24% to total revenues. Not to mention the vast sum that the company may have to dole out in potential damages. The stock was duly pummeled on Monday, closing the trading session with losses of 11%, amply demonstrating that the stockmarkets did not see this development in a favourable light.

  • Also read - Ranbaxy sells out to Daiichi: Our view



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