Moneycontrol Bureau
Shares of pharma majors like Sun Pharma, Lupin, Cipla and Cadila Healthcare fell 2-4 percent intraday after brokerage Bank of America Merrill Lynch (BoAML) downgraded these stocks.
Post recent rally, the brokerage thought absolute returns are unlikely in the next 12 months, and so it downgraded Sun Pharma to underperform. Lupin, Cipla and Cadila were also downgraded to neutral (from buy) despite being positive on their long-term prospects.
However, Aurobindo Pharma remained the only buy in the coverage, says BoAML. The stock rallied more than 2 percent intraday. The upside in stock was also because of company's settlement agreement with Plethico.
According to the report, solid earnings growth and improving margins have led to strong outperformance of the Indian healthcare sector. The sector grew 32 percent in the last six months.
"While some multiple expansion is justifiable given higher returns, we view that some stocks in sector may be priced to perfection with less room for error," said the brokerage in its note.
While BoAML is constructive on long-term growth of these companies, it cut FY15/16E EPS by 2/3 percent to factor in near-term risks (regulatory, EM currency headwinds).
At 11:29 hours IST, the scrip of Sun Pharmaceutical Industries was quoting at Rs 1,117.50, down Rs 32.70, or 2.84 percent and Cipla at Rs 721.50, down Rs 14.90, or 2.02 percent.
Lupin plunged 3.5 percent to Rs 2,009 and Cadila Healthcare slipped 1.75 percent to Rs 1,867.55 whereas Aurobindo Pharma advanced 0.56 percent to Rs 1,330.50 on the BSE.
Posted by Sunil Shankar Matkar
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