Midnight News Update – Nov 08th 2017
The Lupin stock cracked by over 16% on Tuesday after the company admitted that the US FDA had sent a warning letter over its manufacturing facilities in Goa and Pithampur. Both are key formulations facilities for Lupin and US continues to be the largest market for Lupin. Lupin has been under the scanner of the US FDA as have other pharma companies in India over failure to meet up with the stringent US FDA requirements with respect to testing facilities and process documentation. Indian pharma companies are increasingly veering towards EU and the Indian domestic market.
Mutual funds had a record shattering October with the overall AUMs and the equity AUM going up sharply. While the overall AUM increased to Rs.21.4 trillion while the equity AUMs have crossed the Rs.7.08 trillion mark. In fact, the equity AUM crossed the $100 billion mark only during this year. The sharp growth in AUM of equity funds reflects the increasing tendency towards depending on fund managers through the SIP route. Also, with debt and other asset classes not as attractive, equities are emerging as a default choice for Indian investors.
Qatar Foundation is planning to sell Bharti Airtel shares in worth $1.46 billion at a price range of Rs.473 to Rs.490. This is a discount of 8% to the current market price of the stock and is likely to put further pressure on the stock. The Qatar economy has got into financial problems after Saudi Arabia declared an embargo on Qatar and it is currently on Iran to support them. While Qatar has a huge sovereign fund created through gas and oil inflows, they will be looking to hive off some of their investments. It remains to be seen if there are more such sale tranches coming from Qatar and the Middle East.
Broadcom’s $105 billion bid for Qualcomm will ensure that the merged entity literally gets into each and every mobile device. Broadcom and Qualcomm will have an indisputably dominant position when it comes to mobile device chips. The global market for chips is still dominated by Intel and Samsung with the merged entity will be in 3rd place. For example, an Apple I-Phone heavily depends on Qualcomm and Broadcom to bring the product to the level of sophistication that it currently offers. It is doubtful if Qualcomm shareholders will accept the offer as the synergies of the merger may be much bigger.
As Brent crude crossed the $63/bbl mark, there is a genuine fear that prices may get closer to the $70 mark. The reasons are not far to seek. While Saudi Arabia and Russia have agreed to extend cuts, the US inventories have come down sharply. The Problems between Yemen and Saudi Arabia has impacted shipping of nearly 4 million barrels of oil daily. With demand also likely to pick up with the US fiscal stimulus, oil may be getting closer to $70/bbl. However, that may not be good news for India. Firstly, it will push up the trade deficit sharply upwards. Secondly, the downstream impact on CPI inflation will be visible in the next few months. Above all, the government has little room left and they may be forced to dump some of the higher price pressure on to downstream oil companies. That could be a worry!
Second quarter results of Cipla beat estimates on the back of higher margins. Net profit was up by 19% at Rs.423 crore in the quarter. The top line was also up by 9% despite a very difficult operating environment faced by Indian pharma companies. But the big takeaway was that the OPM expanded by nearly 160 basis points to 19.7%. However, the stock plummeted by over 8% as the negative news flows coming from Lupin had a bigger impact on the stock price. Most of the major Indian pharma companies have come on the wrong side of the US FDA’s stringent regulatory oversight!
