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Informist, Wednesday, Feb. 19, 2025

By Alina Geogy

MUMBAI – US President Donald Trump's threat of a 25% tariff on pharmaceutical products made traders place bearish bets on the derivatives segment of Aurobindo Pharma Wednesday. The new threat, along with the US drug regulator's observations on the Andhra Pradesh-based step-down subsidiary of the company, pulled the stock to a 10-month low of INR 1,052.70.

Shares of Aurobindo Pharma slumped as much as 9.5% to a 10-month low in early trade Wednesday, clocking the steepest fall among the 20 constituents in the Nifty Pharma index. The stock came off lows later, and closed at INR 1,135.20, down 2.4%. The other constituents of the index also declined, though to varying degrees.

The sharp fall in pharmaceutical stocks followed US President Trump's comments on Tuesday that he intends to impose tariffs of 25% or more on imports of pharmaceutical products. Tariffs will be "in the neighborhood of 25%," and would "go very substantially higher over the course of the year," various news reports quoted Trump as saying.

These potential tariffs could affect drugmakers which derive a significant portion of their revenues from the US, especially those companies involved in manufacturing generic drugs, analysts said. Charging 25% tariffs will make Indian drugs quite expensive in the US, but companies should be able to pass on the cost to customers in the long term, a research analyst covering the sector at a Mumbai-based domestic broking house said. Aurobindo Pharma has the largest generics portfolio among competitors, followed by drugmakers Zydus Lifesciences, Lupin, and Dr. Reddy's Laboratories, the analyst said.

Traders added short positions to the call options of Aurobindo Pharma, with premiums falling 10-63% across call contracts. The maximum change in open interest on the call side was at the INR 1,140 strike price, which is only 0.4% higher than the closing price. On the put side, the maximum change in open interest was at the INR 1,100 strike price, which is 3% lower than the closing price. Traders also net added short positions to the February futures contract of Aurobindo Pharma, with open interest rising over 5% to 13.11 million.

Late Tuesday, Aurobindo Pharma said the US Food and Drug Administration concluded its pre-approval inspection of the Anakapalle unit of the company's step-down subsidiary Eugia Steriles with five observations. The company said the observations were procedural and would be responded to within the stipulated time. The facility was already cleared on Sept. 24 and this new observation is a pre-approval inspection, the research analyst quoted above said. So possibly the company would have filed some products or added some lines at its existing plant after which the US drug regulator conducted the inspection, the analyst said.

Meanwhile, the overall sentiment was slightly bearish which led traders to add more short positions to most Nifty 50 call options expiring Thursday. The sentiment was likely dented after Trump's latest plans to impose tariffs on imports of automobiles, pharmaceuticals and semiconductors, which was further aggravated by expensive valuations, recent outflows by overseas investors, and lower-than-expected growth in corporate earnings. The February futures contract of the Nifty 50 closed at 22950.00 points, at a premium of 17.10 points to the spot index. Open interest in the contract rose nearly 3% to 17.25 million, according to provisional data.

--Nifty 50 Feb closed at 22950.00, down 22.60 points
--Nifty 50 Mar closed at 23091.00, down 10.35 points; 158.10-point premium to spot index
--Nifty 50 Apr closed at 23241.00, down 10.15 points; 308.10-point premium to spot index

ICICI Bank, HDFC Bank, BSE, Reliance Industries, Bharti Airtel, Tata Consultancy Services, Bajaj Finance, Infosys, Adani Enterprises, Kotak Mahindra Bank, State Bank of India, Hindustan Aeronautics, Hindalco Industries, Tata Motors, Mahindra & Mahindra, Axis Bank, and Bharat Electronics were the most actively traded underlying stocks Wednesday.  End

Edited by Saji George Titus

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