Holding in March

FII equity sales in March lower compared to Jan & Feb

Now that March is over, it's time to look back and check how the foreign institutional investors (FIIs) behaved during the month. The net FII figures aren't much help, because the data includes the FII subscriptions to the capital issues during the month.

It's no use, therefore, to look at the FII purchases, which are far higher than in previous months because of the investments in primary issues.

One widely held prediction of FII behaviour during the month was that they would sell in the secondary market to fund their purchases in the primary market.

Surely, went the argument, they had country limits, and the added exposure to primary issues would be at the expense of their investments in the secondary market.

And the FIIs did sell Rs 11,615 crore worth of equities in March. That's a large amount, but the surprise is that they sold even more in February and January. FII sales in February amounted to Rs 11,862 crore, while they were Rs 14,632 crore in January.

That means the new capital issues did not alter the trend of sales during the year, and in fact the subscriptions to new issues were an addition to the normal FII transactions in the secondary markets.

Contrary to first impressions, the selling in the market during March was not caused by FIIs, but by local investors. Clearly, the attractions of the India story continue to attract new money.

That's also brought out by another statistic""""while the number of FIIs registered with Sebi rose from 508 to 517 between September and December, they have risen to 540 by end-March, indicating the inflow of new money.

The attraction of the Indian market continues to be strong, as overseas as well as domestic demand continues to ensure that earnings growth is robust.

Earnings growth in FY 2005 is expected to be around 14 per cent, and the Sensex is around 15.4 times FY 2005 earnings, and at around 13.4 times FY 2006 earnings.

But the big question is not the relative attraction of the Indian market, but whether the raising of interest rates in the US will reverse or at least stop the flow of funds to emerging markets.

Recent US data showing that job growth is finally happening in the US may finally make up the Federal Reserve's mind to raise interest rates.

Glenmark's Latin gambit

Glenmark Pharmaceuticals has acquired a Brazilian company, Laboratorios Klinger, for Rs 52 lakh "" the company is reportedly planning to finance this deal through a mix of debt and internal accurals.

Analysts point out that it makes sense for Indian pharmaceutical companies to expand their market for generic products beyond America and Western Europe "" regulators in these countries have made it increasingly difficult to launch cheaper Indian generics; notably Dr Reddy was recently prevented by the US FDA from launching the generic version of Pfizer's anti-hypertension drug Norvasc, before the patent expires in September 2007.

Expanding into the Brazilian market is logical for Glenmark "" the size of this market is pegged at $7 billion annually and growing at 10-12 per cent as compared with 4-5 per cent growth in mature western markets.

Also Glenmark's Brazilian subsidiary would provide it with significant synergies in ramping up its product offerings "" Klinger has a strong product pipeline with 21 approved product registrations in Brazil.

Meanwhile, Glenmark currently operates in the cardiac, asthma and anti - diabetic segment and this acquisition, would enable it to enter the fast growing growing segments of creams, gels, oral drops and effervescent tablets.

A significant advantage accruing to Glenmark would be its ability to avoid large legal and marketing costs usually incurred to grow generic sales "" Klinger's headcount numbers 176 and sales representatives account for around 91.

The generics business is getting increasingly very competitive and as a result is one of low margins. Consequently, every effort to prune costs is welcome.

Apart from carving its niche in the Brazilian market, analysts expect Glenmark to leverage its Brazilian operations to enter new Southern hemisphere markets in the next 2-3 years "" countries like Paraguay, Uruguay and Chile are using increased quantities of generics and it provides a ready market for Glenmark's products.

Glenmark's export turnover is expected to be the main beneficiary from this deal "" they amounted to Rs 29.6 crore during FY03 and should grow rapidly in the next 10-12 months. On the bourses, the Glenmark scrip has appreciated by around 8.5 per cent over the last 3 months.

With contributions from Amriteshwar Mathur