13th January 2024 – 20th January 2024 | Another week in the markets
This week, Europe bears the brunt of Red Sea tensions, Drugmakers hike prices of 775 formulations including Ozempic and the EU commission is set to block Amazon’s nearly $2 billion bid to acquire IRobot, which manufactures the popular vacuum cleaner Roomba.
- With the Red Sea tensions refusing to taper off, major shipping companies have been forced to re-route away from the conflict zone. Economists are worried that the hike in transportation costs could setback improvements made on the inflation front.
- Drugmakers like Novo Nordisk, Eli Lilly and others hiked prices of 775 formulations including Ozempic and Mounjaro during the first week of January.
- European Union’s competition watchdog has laid the groundwork to block Amazon’s $1.7 billion bid for Roomba manufacturer IRobot. The e-commerce marketplace agreed to buy the robot maker in August last year.
- Hyundai Motors acquires General Motor’s plant near Pune in Maharashtra. The company will be investing over ₹6,000 crore in the state.
- Reliance Jio posts net profit of ₹5,208 crore for the quarter ended December. The bottom line rose by 12% on a year-on-year basis.
Taking stock | Suez Canal stressors | Drug dents | Roomba rumble | Hyundai’s big move | Jio’s net profit jumps | Invest wisely | Another week in the markets
A tech stock rally sent the S&P500 soaring to record levels. The index rose by 1.2% to end at 4839.81, marking the end of 500 trading sessions without a new record. The Dow Jones Industrial Average moved up by 395 points to 37,863.80 registering a record as well. Nasdaq moved up by 1.7%.
Suez Canal stressors
In the aftermath of the Israeli bombardment of Gaza, Yemen-based Houthi militants had last month unleashed an attack on a globally critical shipping route passing through the Suez Canal.
The latest geopolitical flare-up to rock the international business firmament has forced shippers into re-routing around the Cape of Good Hope in Africa. The alternative route is longer, requires more fuel and man-hours and is effectively ratcheting transportation costs for several European and multinational companies.
A report from Oxford Economics — a global economic forecasting and econometric analysis firm — indicates that a ship plying goods from Taiwan to the Netherlands, travelling at a speed of 16.5 knots takes close to 26 days to cover the distance, via the Suez Canal. Now, the same ship has no option but to opt for the route around the Cape of Good Hope, which increases the journey time to 34 days.
Hearteningly, the supply chain disruptions caused by the Red Sea conflict escalation are not as wide-spanning as the disruptions triggered by the 2020 & 2021 Covid lockdowns. Further, many businesses have also picked up valuable lessons from the upheaval, and have ramped up their inventory levels.
Having said that, businesses around Europe are warning that inventory levels will start running low if the tensions continue to escalate further.
Over 40% of the goods traded between Asia and Europe pass through the channel.
Last week, Tesla said that it will have to suspend production at its only large factory on the fringes of Berlin, as a consequence of the attacks. Volvo Cars also had to halt production of cars at its Belgium plants for three days. Meanwhile, Europe’s largest car manufacturer, Volkswagen told the WSJ that it had to face delays because of shipment re-routing.
In a development that is likely to anger US patients and doctors, major pharma companies have raised the price of 775 formulations.
Ozempic, a diabetic treatment drug, which is also used for weight loss saw its price increase by 3.5% to nearly $970 for a month’s supply. Another well-known drug, Mounjaro, which is also used in diabetic treatment saw its price rise by 4.5% to nearly $1,070 for a month’s supply.
Ozempic is manufactured by Novo Nordisk, whereas Mounjaro is made by Eli Lilly.
Novo Nordisk said that it had raised drug prices after considering factors like market situation and inflation. Eli Lilly told the media that it determined the prices of medicines after reviewing the safety, value and efficacy of the medicines.
Traditionally, drug companies often target price hikes during the first few weeks of the year. Market experts indicated that other drug companies are also likely to follow suit.
Given the contentious nature of the price rises, drug companies have been criticised by both political camps, namely, the Republicans and the Democrats, for pushing double-digit price hikes annually. Given the strident outpouring that follows such hikes, this time around pharmaceutical giants have tempered their price rise to single digits.
In 2023, the US government went on the offensive, and started imposing penalties on drug companies that raised medicine charges over the inflation rate.
Amazon’s $1.7 billion bid for Roomba manufacturer IRobot is likely to run into administrative hassles as the European Commission, EU’s competition watchdog, is all set to challenge the acquisition bid.
The e-commerce major made a bid for the popular vacuum cleaner manufacturing company last August.
As per the Wall Street Journal, officials from the competition regulator met Amazon’s representatives to discuss the deal. Reportedly, the company officials were told that the deal would, in all likelihood, be rejected.
The deal’s rejection would still have to be accepted by 27 top political leaders of the commission. However, this process is, by and large, formal in nature, and never before in the history of the commission has a directive by the competition commissioner been overruled.
The commission has time till February 14 to deliver a final decision.
Markets responded negatively to the EU development and the IRobot share collapsed by 40% during trading hours on Thursday. The stock ended the day at $23.62 levels, much below the $61 per share that Amazon agreed to buy out the company.
The European Commission first raised objections against the deal in November arguing that the foray of Amazon into the sector could restrict competition in the vacuum cleaner market. The commission contended that Amazon might restrict access of Roomba’s rivals to its marketplace and prevent them from selling their products.
Amazon’s bid for Roomba manufacturer IRobot likely to sink
Source: Google Finance
Hyundai’s big move
Hyundai India on Friday said that it had completed the acquisition of General Motor’s manufacturing plant in Talegaon near Pune, Maharashtra.
The second-largest car manufacturer in India also reaffirmed its commitment to invest ₹6,000 crore in Maharashtra, as per an agreement inked between the company and the state government in Davos.
Hyundai India disclosed in a press release that the acquisition formalities had been categorically completed after fulfilment of a few conditions, and receipt of regulatory approvals from the state authorities.
The company said that it will kickstart its manufacturing operations at the plant from 2025. The Talegaon plant has an annual capacity of 1.3 million units, and will play a critical role in helping Hyundai achieve the 1 million annual production milestone.
The auto manufacturer also indicated that it will be introducing phased investments to upgrade the existing infrastructure and equipment at the facility.
Earlier, General Motors had agreed to sell the plant to Great Wall Motors, one of China’s auto manufacturing giants. However, the deal fell through as the latter put off its plans to enter the Indian market.
Jio’s net profit jumps
Reliance Jio, the telecom vertical of the Reliance conglomerate, reported a 12.3% rise in the net profit to ₹5,208 crore for the quarter ended December 2023.
The December results put an end to a four-quarter run of falling profit growth for the telecom company. The company also reported the highest revenue in the last five quarters helped by subscriber additions boosted by a competitively priced 4G phone. The revenue of the telecom major rose by 10.3% to ₹25,368 crore in the latest quarter on a year-on-year basis.
The consolidated revenue of the conglomerate rose 3.36% to ₹2.28 lakh crore disappointing analysts who had anticipated revenue of ₹2.31 lakh crore. Net profit delivered a positive surprise rising by a little over 9% to ₹17,265 crores. In the quarter ending December 2022, the net profit stood at ₹15,792 crore.
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