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Pharma stocks end 5-year of bear phase; Lupin, Aurobindo among top 5 buys

Experts feel that the current environment is more conducive for the Pharma sector and the rally is likely to continue in some of the names.

June 08, 2020 / 02:49 PM IST
 
 
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Nifty pharma index has rallied by more than 50 percent versus about a 30 percent gain seen in the Nifty50 and it looks like the index has ended its five-year of a bear phase.

In the last five years, the Nifty Pharma index has fallen by about 40 percent from the high of 14,020 recorded on April 7, 2015 to 10,081 as on June 5, 2020. The Pharma sector has been the best performing sector since the onset of the COVID-19 crisis.

Experts feel that the current environment is more conducive for the Pharma sector and the rally is likely to continue in some of the names. Lupin, Aurobindo Pharma, Sun Pharma, Dr Reddy’s Laboratories, and Divi’s Laboratories are among top buys.

“Pharma index appears to have embarked on a bull market of its own after ending 5-years of bear phase in which index witnessed value destruction of around 55 percent from the highs of 14,020 to a low of 6,242,” Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in told Moneycontrol.

“Interestingly, this entire correction unfolded in a downward sloping channel and a breakout above the said channel in April 2020 has marked the end of its bearish phase,” he said.

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Mohammad further added that this channel opened up a 20 percent appreciation with targets placed around 12,200 levels. Hence, all dips in this sector appear to be buying opportunities and in the longer-term, this sector shall emerge as a winner as it remained an underperformer post-2015.

“In the near term 8,999 appears to be a good support and breach of this can lead to medium-term underperformance. Nevertheless, such correction shall be a good opportunity to go long.  While Lupin, Aurobindo, Sun Pharma remains our favourites a secular bull run shall be witnessed in this sector going forward,” he said.

Pharma 7 June

What should investors do?

Pharma stocks are looking very good. Five stocks in the pharma space hit a fresh 52-week high on Friday. These include Lupin, Cipla, Sun Pharma, Biocon, and Marksans Pharma.

Sumeet Bagadia, Executive Director at Choice Broking recommends Sun Pharma, Divis’s Laboratories, and Dr Reddy’s as a buy for the next 3-4 weeks:

Sun Pharma: Buy | Target Rs 545 | Stop Loss: Rs 455

On the daily chart, the stock has already given a breakout of its Flag Formation with above-average volume which is a good sign for the time being.

Moreover, the stock has been sustaining above its 480 level which suggests further upside movement from the present level.

Daily momentum indicator RSI reading is at 64.75 level with a positive crossover which points out for a positive breath in the counter, and any dip up to 480, would become a good buying opportunity with the stop loss of 455, and a target of Rs 545.

Divi’s Laboratories: Buy | Target Rs 2,745-2,800 | Stop Loss Rs 2,250

On the daily chart, the stock has given a breakout of its triangle formation with above-average volume which indicates a further spurt in the counter.

Moreover, the stock has taken the support of its 50-Days EMA which suggests a good bounce back in the counter. Any dip up to 2,380, would become a good buying opportunity with the stop loss of Rs 2,250 for a target of 2,745-2,800.

Dr Reddy’s: Buy | Target Rs 4,400-4,450 | Stop Loss: Rs 3,750

Like Sun Pharma, the stock has given a breakout of its Flag Formation with above-average volume which suggests a further upside movement in the counter.

Moreover, the stock has been trading above its 50 Days Moving Average which shows a positive trend for the time being. So any dip up to 3,900, would become a good buying opportunity with the stop loss of 3,750, and a target of Rs 4,400-4,450.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
Kshitij Anand is the Editor Markets at Moneycontrol.
first published: Jun 8, 2020 02:49 pm

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