Good days for Indian Pharma ahead?

Pharmaceutical stocks have been indicating strength with their recent performance and being the favourite of D-street since the past three weeks. These stocks have reacted positively to the developments in regards to curb COVID-19 spread, which give strong revenue visibility in the near future for these companies.

After a long time, pharma stocks have seen a positive sentiment. For three calendar years, ending December 2019 set of stock represented by Nifty Pharma ended up giving 1.24 per cent returns while, the benchmarks have surged as much 50 per cent between this time period. The key reason for this staggered performance was the lack of any strong trigger that could bring certainty in term of revenue. Further, many regulatory hurdles, such as from USFDA, also made things difficult for these companies.

In recent times though, a strong demand trigger seem to have come for the pharma players. Demand stream, being one of the measures, can be expected from hydroxychloroquine (HCQ), which is mainly malaria-related vaccine. Export of this medicine have been lifted that would certainly drive the demand. Further, looking at demand at the domestic levels, companies might also go for extra capacities. In times such as now, when total consumption theme has come to a halt, extra work could be an important growth parameter.

Stocks such Cipla, Aurobindo Pharma, Sun Pharmaceutical Industries, Dr Reddy’s Laboratories, Cadila Healthcare, Glenmark Pharmaceuticals have given returns in range of 35 per cent to 25 per cent since March 24, 2020.