Stocks such as Glenmark Pharma have surged 94 per cent this year so far while Aurobindo Pharma is up 91 per cent. On the flip side, shares of Gland Pharma are down 20 per cent this year so far. Pfizer shares are also down 12 per cent.
On a monthly basis, Nifty Pharma has been in the green since March. In June, the pharma index rose nearly 9 per cent; in July so far, too, the index is up almost 9 per cent.
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Why are pharma stocks rising?
Pharma stocks have been gaining on several factors, including improved performance in the US generics market, robust performance in branded markets, moderation in raw material costs, and market share gains in recently launched products. Moreover, concerns over economic slowdown have also supported pharma stocks as the pharma sector is a defensive sector which is considered immune to economic downturns.
Shrey Jain, Founder and CEO of SAS Online – India’s Deep Discount Broker underscored that the recent increase in pharma stocks can be attributed to multiple factors.
“First, the rating agency ICRA has projected a promising growth rate of 7 per cent to 9 per cent for the Indian Pharma Industry in FY24. Second, the industry has benefited from a decrease in raw material prices. Additionally, up to a 12 per cent price hike in pharma products has played a crucial role in boosting domestic revenues, leading to the sector rally,” said Jain.
Manoj Dalmia, CEO of Proficient Equities said rising demand for healthcare products is one of the key factors that has given a boost to pharma stocks in the recent time.
“As the global population ages and becomes more affluent, there is a growing demand for healthcare products. This is providing a tailwind for the pharma sector,” said Dalmia.
“Pharma companies are increasingly investing in research and development, which is leading to the development of new and innovative drugs. This is also helping to boost the sector’s growth prospects. Moreover, pharma companies have been reporting strong earnings in recent quarters, which has helped to boost investor confidence in the sector,” Dalmia observed.
The road ahead
The medium-term movement of pharma stocks will depend on drug pricing in key markets and regulatory factors.
As Dalmia underscored drug prices are under pressure in many markets, which could weigh on the sector’s profitability. Pharma companies are facing increased regulatory scrutiny in many countries, which could also impact their growth.
“Overall, the medium-term outlook for the pharma sector is mixed. There are some positive factors that could drive growth, but there are also some challenges that could weigh on the sector’s performance,” Dalmia said.
“The sector is likely to continue to benefit from rising demand for healthcare products in the long term. However, the pace of growth in the sector is likely to slow in the medium term due to the challenges mentioned above. Investors should focus on companies with strong pipelines of new products and a track record of innovation. Companies with a global presence are also well-positioned to benefit from growth in emerging markets,” said Dalmia.
Jain pointed out that the Indian pharmaceutical industry is expected to grow steadily from approximately 7 per cent to 8 per cent between FY24-FY25. This growth will be influenced by factors like more elderly people, an increase in lifestyle-related and chronic diseases, people becoming more aware of healthcare, more people having health insurance, and the government spending more on various healthcare schemes.
Jain advises investors should keep an eye on the US FDA, particularly concerning any specific warnings issued to individual companies.
Kaushik Dani, Fund Manager – PMS at Abans Investment Managers has positive views for the pharma sector for the medium term.
“Some of the large Pharma companies are seen delivering good Q1 results, as against lower expectations. Domestic pharma growth has been in double digits in recent times. More importantly, there seems to be a growth revival in North American markets. Successful resolution of various USFDA observations that many Indian stocks are saddled with, would make the pharma sector interesting and positive over the medium term,” said Dani.
With valuations of the overall pharmaceutical sector at attractive levels, Prathamesh Masdekar, a research analyst at StoxBox believes that the long-term growth outlook for pharma companies remains intact, and the sector is expected to deliver robust performance in upcoming quarters.
“The current market sentiment looks to be in favour of defensive sectors as they are relatively immune to economic downturns, and pharma stocks are often seen as defensive due to the essential nature of healthcare products and services,” said Masdekar.
Nifty Pharma Technical View
Pravesh Gour, Senior Technical Analyst at Swastika Investmart pointed out that Nifty Pharma has experienced a breakout from a triangle formation on the longer time frame, and it bottomed out at lower levels around 11,500.
“During the last trading session, the index surpassed its previous all-time high of 14,938, indicating strong upward momentum. Moreover, the counter’s overall structure appears promising, as it is currently trading above all its important moving averages,” Gour observed.
“Looking ahead, the key psychological resistance level to watch is 15,200. If the index manages to surpass this level, there is potential for further gains towards 15,500 in the near to short term. On the downside, in the event of any correction, the 14,500 level is expected to provide crucial support,” said Gour.
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Updated: 28 Jul 2023, 12:59 PM IST