The euphoria which started in 2021 has fizzled out after the second pandemic wave swept across the globe in February.
The S&P BSE Sensex wiped out most of the gains made in the year, but there is one sector that continued its outperformance.
The healthcare sector, the top performer of 2020, has rallied more than seven percent so far in the year while the S&P BSE Sensex is up less than a percent in the year 2021.
The momentum pushed as many as 12 stocks to a fresh 52-week high on Tuesday, cementing the belief that the rally is here to stay and investors can still get their jab of pharmaceutical (pharma) stocks in their portfolio for the long term.
Stocks that hit a fresh 52-week high on the Bombay Stock Exchange (BSE) on Tuesday include names like Glenmark, Cipla, Apollo Hospitals, Sun Pharma and Neuland, among others.
What is fuelling the rally in pharma space?
Significant resurgence in coronavirus cases across India has led to a spike in demand for COVID-related drugs, as well as allied services such as hospitals, diagnostic and pathology labs.
Said Axis Capital in a report: “Significant resurgence in Covid cases across India will benefit players like Cipla, Dr. Reddy’s and Cadila, who are scaling up capacity and production to meet the sudden rise in demand.”
Pharma players have seen a spike in export demand in FY21 and the approval of vaccines for all above 18 years will result in a rally in specific stocks that have vaccine rollout contracts with companies like Astrazeneca's Covishield and Russia’s Sputnik-V.
Palka Chopra, Senior Vice President, Master Capital Services told Moneycontrol: “India’s pharma exports jumped 18 percent to reach $24 billion in FY 2021 as COVID-19 pushes demand globally. India’s pharmaceutical industry stood strong in times when the COVID-19 pandemic has pushed several economies and businesses to the brink.”
“When the global pharma market in 2020 grew negatively by 1-2 percent, there was a big surge in demand for Indian- made generics owing to its quality and affordability. Growth rate seems relatively big as the exports were crunched in March 2020 due to lockdown across the world and supply chain disruption,” she added.
According to Chopra, compared to the last eight financial years, the pharma industry has observed the highest export figures and growth rate in this financial year.
Due to the increased demand for Indian-made generics and vaccines, the same trend is set to continue, feel experts.
A big growth in vaccine exports would be visible in the coming years and government policy on the production linked incentive (PLI) scheme will also help the Indian pharma industry to grow by reducing import dependence and develop export potential in the coming days, with many countries looking at India for APIs (active pharmaceutical ingredient).
Should you put your money now?
The next big question, naturally, for investors is should they put their money in stocks or a thematic pharma fund?
Both the options are fit for a specific group of people. Investors who are slightly risk-averse and don’t have time to do research could look at pharma funds while investors who have time to explore specific companies, can go for stocks.
“It depends on knowledge, appetite, and time available to an investor. Those who have a lower appetite and lack of time should prefer thematic pharma funds. Those who want to take the risk and get higher returns can prefer to buy leading pharma stocks,” Vishal Wagh, Research Head, Bonanza Portfolio Ltd told Moneycontrol.
Nitin Shahi, Executive Director, Findoc, told Moneycontrol that it is better to buy pharma funds and if someone wants to buy stocks then blue chips like Sun Pharma, Cipla and Lupin offer the best options.
“They look more promising from the long term horizon. Blue chip pharma stocks profits are expected to provide double-digit growth in revenues and profits over the next years as the expenditure on healthcare is going to increase in the medium to long term,” he predicted.
Where to put the money?
The pharma sector is consistently outperforming the index since the second wave of the pandemic began. To play the theme, investors should be positioned in the right stocks that could well turn out to be wealth creators.
“Pharma is in an uptrend and it may continue its rally. It is very near to the highs of 2015, so on a successful breakout the rally may continue. Since the major trend is up, entry can be made on corrections,” says Chopra of Master Capital Services.
Before the pandemic, the market had witnessed around five years of consolidation in the sector and many stocks were still far away from the all-time highs touched in the year 2015.
Says Shahi of Findoc: “With the government allowing vaccines for all above 18, there will be a rally in specific stocks that have vaccine rollout contracts with companies with approved jabs like Astrazeneca's Covishield and Russia’s Sputnik-V.”
“Rally is expecting to sustain. The Nifty Pharma index has given a fresh breakout on technical charts above 13,000-13,200 levels. Cipla, Cadila Healthcare, Glenmark, Neuland Lab and Dr. Lal Path Labs can be considered to add at current price or add more even on dip,” he said.
Companies that are focused on the R & D pharma sector can be considered for investment.
Wagh of Bonanza Portfolio likes Cadila Healthcare, Dr Reddy’s Laboratories, Cipla, Glenmark Pharma, and Divi’s Laboratories, which belong to this sector.
Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before making any investment decisions.