Capital goods drag down indices

Mon, 10 Jan 09:30 am

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Asian markets have started the week on a dull note. Benchmark indices in Indonesia (down 3.4%), Korea (down 0.5%) and China (down 0.4%) are the biggest losers. However, Japan (up 0.1%) is seeing some buying interest. Indian markets have opened the day in the negative as well. Stocks from the capital goods space are the biggest losers. However, IT stocks are witnessing buying interest and have opened in the green.

The BSE-Sensex is trading lower by around 60 points (0.3%), while the NSE-Nifty is down by about 10 points (0.1%). Mid and small cap stocks are trading in the negative as well, with the BSE Midcap BSE Small cap indices down by 0.1% each. The rupee is trading at 45.36 to the US dollar.

IPOs are the bread and butter of investment banks. However, if the government gets its way, then the investment bankers will have to work for free. Or almost for free. Recently the government has set the reserve price of Re 1 for the prestigious Rs 130 bn issue of oil major ONGC. An issue of this size would have earlier commanded a fee of Rs 1.3-2.5 bn. However, buoyed by investment bankers’ keenness to work almost free of cost, the government has decided to set the reserve price to Re 1. The reason as to why the investment bankers are willing to forego their fees is the prestige of being involved in such a large issue. It would help them gain credibility especially in the overseas markets. The government plans to appoint six investment bankers for managing the issue of ONGC. The selection would be based on the bankers’ past performance. Let us hope that this gamble pays off for the investment bankers who have already seen revenues from this stream dwindling in recent times. The stock of ONGC is currently trading in the red. Other oil majors BPCL, HPCL and IOC are trading in the red as well.

Pharma stocks have opened the day in the red. Glenmark Pharma, GSK Pharma and Piramal Healthcare are the biggest losers currently. The Drug Controller General of India (DCGI) has banned the pharma companies from advertising their products through awareness campaigns. The DGCI has stated that the companies are using awareness campaigns as a marketing campaign and are not educating the consumers of the possible side effects of the drugs. The latest to receive the notice from DCGI is Piramal Healthcare. The DCGI has asked the company to stop airing the ad for its emergency contraceptive pill. The government had banned advertisements for emergency contraceptives last July. However, the company had decided to launch a marketing campaign this year. The company had acquired the drug from Cipla early last year. The drug is now a leading brand in the Rs 1,000 m market. The company derives annual sales of Rs 310 m from this segment. Pharma companies generally undertake nation-wide product awareness programmes and campaigns to boost the sales of the products. Such a ban by DCGI may have an adverse impact in sales from the segment in times to come.