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Daiichi Loses 20% on Selling Its Stake in Sun Pharma; Larger Questions on Market Liquidity Too

Sun Pharma has fallen 10% to 940 as Daiichi prepares to sell its stake of 214 million shares, on the stock exchanges. Daiichi acquired Ranbaxy at the price of Rs. 737 per share in 2008, and recently, Ranbaxy was merged into Sun Pharma for a ratio of 8 Sun pharma shares to 10 Ranbaxy shares.

This transaction may not involve the exit of Daiichi completely, as they might retain some stake, and they have continuing business with Ranbaxy. But it ends their nearly-seven-year ordeal with the Ranbaxy stock during which the company was subject to many FDA reviews, humiliating and financially hurting import bans from its Indian plants and a solidly profitable company moving to a loss making one.

Currency Hit: Daiichi Still Lost 20%

They paid around Rs. 20,000 cr. to acquire Ranbaxy.

At the time of their acquisition, the Yen was 2.5 to a rupee. The purchase in Yen terms was 500 billion yen.

Today, supposedly, they sold the stock at 20,420 cr. a 1.9 yen to a rupee. Which makes the sale worth 400 billion yen.

7 years, and a 20% loss on a transaction that broke even in rupee terms, because the Yen appreciated with respect to the rupee. The rupee went through a massive depreciation in 2013 and has fallen from the 45 levels (to the USD) in 2008 to 63 today.

(Don’t tell me they hedged. Hedges cost 5-6% a year, which would have lost 40% in seven years for the hedge itself!)

FII Data Will Be Wonky

20,000 cr. in a single day is a massive amount. To give you an idea, the entire NSE stock exchange traded just Rs. 17,000 cr. yesterday!  And here’s today’s data, till now:

image The shares will have been purchased by Foreign Investors. Their data will look strange, as they will effectively have purchased stock in huge amounts and Daiichi would have exited (as a foreign investor). So today’s FII data will look weird.

What about Liquidity?

When you take 20,000 cr. away from the market – Daiichi is taking the money out, but investors who buy the stock will have allocated a lot of money into this stock while leaves very little money for anything else.

Does this money, that’s being sucked out of the market (and taken to Japan) cause a temporary stutter in the market? Think about it, the same buyers that bought from Daiichi are the ones buying other stocks – they would have very little left to allocate for the future, I imagine. So tomorrow, if there’s more sellers, are there enough buyers at that price, or will the market fall in order to reflect the lower demand?

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