Daily Voice: Anil Rego cautious on US-exposed pharma stocks; warns against underestimating tariff-led global slowdown

What is your take on the pharmaceutical sector, especially after Trump's action?

Trump's 100% tariff on branded and patented pharma drugs, effective October 1, creates significant uncertainty for Indian pharma companies earning 30-50% revenue from the US market. While the immediate impact targets branded drugs dominated by MNCs, the broader concern is potential extension to complex generics, where Indian companies like Dr Reddy's and Sun Pharma have strong positions.

With India supplying 45% of US generic drugs and the US being our largest pharma export market, worth $8.7 billion in FY24, any escalation beyond current measures could fundamentally alter sector dynamics.

From an investment perspective, we would be cautious on high US-exposure names like Aurobindo Pharma (48% US revenue) while watching for companies with diversified geographical presence or those willing to establish US manufacturing facilities.

Do you believe India will grow by more than 6.5% in the current financial year and exceed 7% in FY27?

India's current FY26 growth trajectory appears challenging, with the RBI projecting 6.5% and S&P Global lowering forecasts to 6.7% for FY26 and 6.8% for FY27. While we've seen resilient domestic consumption patterns, the medium-term growth potential is stabilizing around 6.5-7%, which frankly isn't sufficient for our demographic dividend needs. The key will be how effectively we leverage infrastructure spending and manufacturing momentum to sustain above 7% growth. We remain cautiously optimistic but believe sustainable 7%+ growth requires structural reforms rather than just cyclical recovery.

Do you think trade tensions have peaked, and is it now time to turn optimistic?

Recent US-India trade tensions with 50% tariffs on select Indian exports, including jewellery, show that geopolitical uncertainties are far from over. From our experience studying market cycles, we have learned that global economic disruptions often persist longer than markets anticipate. The evolving US-China trade war dynamics are reshaping global supply chains, creating both challenges and opportunities for India.

While India may benefit from supply chain diversification, we shouldn't underestimate the broader global slowdown impact. We would wait for clearer policy signals before turning decisively optimistic.

Do you expect the RBI's Monetary Policy Committee to maintain the status quo on interest rates on October 1? What are your expectations from the commentary?

Given the rupee's pressure and persistent inflation concerns, we expect the RBI to maintain the status quo on rates while focusing on managing currency volatility through market interventions. With RBI projecting 6.4% growth for FY25 and inflation expectations at 4.8%, the commentary will likely emphasize a data-dependent policy stance. The key focus should be on managing external sector vulnerabilities while supporting domestic growth momentum. We anticipate cautious language around global spillover risks and continued emphasis on financial stability.

Do you think the pace of rupee depreciation is likely to slow down from October onwards?

The rupee's fall below 88 against the dollar amid FII outflows and trade tensions suggests continued pressure, with the RBI likely to intervene to manage excessive volatility.

From a structural perspective, sustained FII selling and global dollar strength will continue challenging the rupee. However, ongoing FII selling pressure amid global uncertainties indicates that depreciation pace may not moderate significantly until we see a sustained foreign inflow revival. RBI's intervention capability provides a floor, but fundamental drivers remain challenging.

Could metal and PSU stocks lead the next leg of the market's upmove?

After India's equity market underperformed in 2025 due to domestic slowdown and FII selling, with significant wealth erosion in early 2025, we believe sector rotation is inevitable. Metal and PSU stocks often benefit from government capex cycles and global commodity trends, making them potential leaders if infrastructure spending accelerates.

However, given my philosophy of monitoring valuations closely, we would prefer to see clear earnings recovery and reasonable valuations before making sector-specific calls. The key is identifying companies with strong fundamentals rather than just sectoral momentum.

From an FII perspective, do you think Indian market valuations are still unattractive?

While valuations remain a concern, particularly after the recent correction, FII sentiment is driven by relative attractiveness versus global alternatives. From our experience managing portfolios through various cycles, we have seen that being nimble and monitoring market valuations is crucial - as we did in Q4 2019 when we became uncomfortable with high valuations.

Currently, while Indian markets offer long-term structural growth stories, near-term FII flows will depend on global risk appetite and dollar cycle. We would focus on building positions gradually rather than expecting immediate FII return.

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