Ouch-Aah-Wow! - Views on News from Equitymaster

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Sep 20, 2008

This can be an apt exclamation to summarise the week gone by. It began with a groaning 'ouch', went to an 'aah', and ended with a 'wow', with the US government and central bank announcing a rescue plan to ease liquidity in the financial system. This week's action did not begin on Monday but on the preceding 'Black Sunday' when the world woke up to hear the demise of a revered Wall Street firm - Lehman Brothers, and stumbling of another - AIG.

  • Also read - Once in a century crisis

    As for the Indian markets, there was nothing special to do but follow global (read US) cues. There was deep desperation till about the middle of the week, as was also seen across key global markets. However, expectations of a financial rescue plan from the US government and central bankers raised the sinking ship yet again. And the Indian benchmark index (BSE-Sensex) like its Asian peers romped home with a 700 points gain on Friday.

  • Also read - Simple survival lesson

    Here is a pictorial representation of how the world and Indian equity markets performed during the week.

    Indian stocks - Movers and shakers during the week
    Top gainers during the week (BSE-A Group)
    Company12-Sep-0819-Sep-08Change52-wk High/LowChange from 52-wk High
    KSK Energy187 232 23.8%0 / 0NA
    Punj Lloyd284 311 9.5%589 / 183-47.1%
    Ind. Overseas Bank100 109 8.9%229 / 70-52.6%
    Kotak Bank578 629 8.8%1,436 / 419-56.2%
    Cummins India 291 313 7.5%463 / 225-32.5%
    Top losers during the week (BSE-A Group)
    NMDC279 218 -21.9%547 / 166-60.1%
    Ranbaxy454 357 -21.4%614 / 300-41.9%
    Sesa Goa 136 109 -19.7%220 / 99-50.4%
    Bajaj Finserv468 376 -19.6%0 / 0NA
    Mundra Port & SEZ563 457 -18.8%0 / 0NA
    Source: Equitymaster

    The week's biggest news
    Pharma major Ranbaxy made news during the week, though for negative reasons. The stock was among the key losers (down almost 21% during the week). This was following the US FDA (US Food & Drug Administration) blacklisting 30 generic drugs being manufactured by the company at its plants in Dewas and Paonta Sahib. While the FDA did not impose a ban on the drugs or sought a withdrawal of the medicines from the US drug stores, what it had done was issue an import alert under which US officials may detain any products manufactured at these facilities of the company.

    Considering that Ranbaxy manufactures some of its most important and high selling products at these two plants, the decision would have a significant impact on its revenues going forward. Following the FDA restriction, the company has moved fast to appoint the former New York City mayor Rudolph Giuliani to help respond to the order.

    Unless and until Ranbaxy takes fast steps to adhere to the quality standards of the FDA, its credibility stands at stake. Interestingly, the promoters of the company have exited the company at a 'convenient' time to pocket a cool premium for their shares, while the minority shareholders are left to grapple with the wrongdoings of the company.

  • Also read - Ranbaxy's perverse engineering

    As Mr. Ajit Dayal, the co-founder of Equitymaster, recently exclaimed - "Ranbaxy has reminded us that, for all the exciting investment opportunities that exist in India, we swim naked much of the time. And, for all our speeches and TV talk of how modern our business operations are, a founder shareholder will always know a lot more than a 'minority'."

  • Also read - Archives of Today's Markets

    What to expect?
    We have just concluded was can truly be called the most dramatic week the world financial markets have seen during this decade. Some call the current crisis in the US the worst since the Great Depression of 1929. Some have even proclaimed the death of Wall Street. Mr. John Bogle, who was born five months before the stock-market crash of 1929 and in 1976 propounded the concept of index funds and, calls the US government as being 'punch drunk'.

  • Also read - How Wall Street failed?

    He says, "We're playing a game of casino capitalism, interfering the way the market is working. The government seems punch drunk. It doesn't seem systematic."

    Mr. Bogle sums up the entire situation very well - "We're in the most speculative market I've seen. We seem to be in the depths of despair one moment and the heights of optimism the next."

    The US government's financial rescue plan has elicited 'wow' from market participants across the world. Will it turn into another 'ouch' remains to be seen.

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