Moneycontrol analysed pharma stocks with a market cap of over Rs 1,000 crore. In order to find out if there are any scrips available at a reasonable valuation, we used five-year average price-to-earnings as a filter
The Indian pharma sector has been going through one of its low points of late. Even as the US regulator tightened its noose around Indian pharma companies, domestic competition and rupee appreciation in emerging markets stymied growth in the sector. The BSE healthcare index fell around 22 percent in the last one year. Since then, pharma stocks have corrected heavily and are trading at a reasonable level.
Moneycontrol analysed pharma stocks with a market cap of over Rs 1,000 crore. In order to find out if there are any scrips available at a reasonable valuation, we used five-year average price-to-earnings (PE) as a filter. Our search yielded 10 stocks which were trading at a discounted PE — over 20 percent compared to their five-year average PEs.
(Although there are various other parameters and metrics which would determine a stock's cheaper valuation, we selected our stocks on the basis of PE.)
Five stocks in the list witnessed a deep correction in their stock prices, giving a negative return of over 35 percent in the last one year.
A word to the wise. While the overall market sentiment is positive right now, pharma, which used to be a safe bet, has now become a volatile sector. It has corrected much now and is available at a lower price. Investors will do well to remind themselves that the sector is going through a bad patch.For more on some of these stocks, here are a few expert views and analysis by research firms
- Buy Sun Pharmaceutical Industries; target of Rs 550: KRChoksey
- Buy Lupin; target of Rs 1650: HDFC Securities
- Shahina Mukadam of Independent Market Expert says: “I would be investing in the pharmaceutical sector with a two-to-three year horizon. If I have a six month horizon, I would stay away.”.
- Buy Glenmark Pharmaceuticals; target of Rs 840: Axis Direct