Even after a three-day break from trading, the story for pharma shares such as Cipla, Cadila Healthcare and Lupin remains the same — hitting fresh highs and moving up, defying the benchmark indices which have been unable to exit the red on Monday. While BSE Healthcare index hit a fresh 52-week high, Nifty Pharma was the only sectoral index to spend the day moving higher and higher. Even as businesses across the country continue to face a demand problem, pharmaceuticals is the one sector that has neither stopped manufacturing, is not facing any logistical challenges, instead sales, both domestic and international are going strong.
The long term outlook for the sector remains strong. “We believe COVID-19 will not have any structural impact on the pharmaceutical industry over the long term considering its growth visibility coupled with its relatively defensive nature of the business,” said ICICI Securities in a research report. ICICI Securities picked Cipla as the top choice among the pharma peers, the stock hit a fresh 52-week high on Sensex, going up over 2.5% to trade at Rs 608 per share.
Although pharmaceutical companies remain an attractive bet, the recent surge in pharma stock might fizzle out soon, warns Vishal Wagh, Research Head of Bonanza Portfolio. “The current rally will fizzle out and then surge again. If someone is going stock specific like Divi’s Labs, Aurobindo Pharma and Dr Reddy’s then that can be thought of. But, not all the stocks are good to enter now,” Wagh said. He suggests waiting for the pharma stocks to dip and then entering the market to buy them.
Since the news of Hydroxychloroquine, being termed as a possible medication to the novel coronavirus, made the rounds Indian pharma firms have been an attractive buy for investors. Sun Pharma has seen its share price jump 43% since the last week of March, while Lupin has surged 50% in the same time period. Cadila Healthcare and Cipla too have walked on similar lines going up over 40% with many Pharma stocks hitting back to back 52-week highs.
In the near-term outlook, ICICI Securities expects the trend of consuming more vitamins, minerals and nutritional medicines catching up with the public, resulting in more market for pharma companies. While in the long run, the brokerage thinks the focus will shift towards expanding capacities for intermediate APIs. With the increase in production for APIs, the demand from other countries seeking an alternative of supply could also look at India as the possible supplier. “There is also the expectation that pharma companies will benefit in the future with many approvals coming their way as a result of supplying hydroxychloroquine to the world,” said Wagh.
