Crimean Dispute Poses Risk To Indian Generic Drug Companies
BMI View : The fallout from the Crimean dispute on global financial markets is set to impact Indian drugmakers. The rouble and the hryvnia have tumbled against the rupee, wiping out some of the cost advantages that Indian companies enjoy against competitors. With prices fixed on a considerable proportion of medicines on the market in Russia, the impact of these currency movements will be felt on the profit line for many Indian generic drugmakers.
The crisis in Ukraine involving Russia and the subsequent annexation of the Crimea has had considerable macroeconomic consequences; the Russian rouble experienced a considerable sell-off in the previous two months as capital flows reversed and investors sought safer assets in developed countries. Similarly, Russian companies and citizens traded roubles for dollars to hedge against further devaluation amidst a climate of heightened volatility on the currency and capital markets.
While the impact has not immediately filtered through to multinational companies with local subsidiaries in the country, the implications of the events in Crimea will be undoubtedly be felt at the end of quarter when cash is repatriated from Russian subsidiaries to their country of residence. As a result, investors in Indian pharmaceutical equities have sold off positions, with the benchmark BSE Healthcare Index down by 5.9% over the two week period between February 28 and March 18, although some of this decline was attributable to bearish sentiment following FDA warnings prior to the events.
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