Pharma sector is the next darling of market

In the recent past, the mutual fund houses aligned their products to invest in the pharma sector. The sector which has seen a huge decline in the last couple of years is now a darling for the mutual fund houses. Recently, Mirae Assets and ICICI Pru announced new thematic schemes keenly focused on maximizing profits from the pharma sector stocks.

Market pundits and fund managers believe that the valuation of the stocks within the pharma and healthcare space seems to be cheap and suggest a potential room for the upside.

Over the last couple of years, the pharma industry has faced many challenges on both fronts that is at domestic and overseas. There is intense pressure on pharma companies to reduce drug prices and due to increased competition in the domestic front coupled with buyer consolidation in the overseas market and USFDA inspections prompting the stoppage of US sales from Indian plants have hurt performance on the international front.

This phenomena has led to sharp erosion in the stock prices of frontline companies, with market leaders such as Sun Pharma, Lupin and Dr. Reddy’s which has witnessed a major setback. But now the worst may be over.

The large players of the sectors are reviving their product portfolio at the same time, the sector has managed to cope up with the major transitional changes due to GST and demonetisation in the last year. Even though the key players of the sector have invested in the R&D activities which is expected to bode well for the upcoming period for the sector. The sector has come up with the robust earning growth whereas margins are still lower due to the higher R&D expenses. On the revenue front, the companies with the domestic focus and biosimilar profiles have fared well in the latest quarter. Many market experts expect the growth phase of the sector to continue in the upcoming quarters on the domestic front. As well as on the international front, the sector seems to be promising due to positive vibes from the USFDA.

With the decline in the last two years, the investing space in the pharma sector is increased much more for now and at the same time, new listing of the hospitals and diagnostic companies have added more to the basket of the investible stocks of the space.

Further, the macroeconomic environment for the sector also seems to be positive that is factors like rupee depreciation, government policies and the rising income levels are promising a robust growth path ahead. So the sector can be a great bet in the moderate or long-term horizon of say 5 years or more.

With all these positive takeaways, the sector seems to be the next darling of the mutual fund schemes, AMC’s and investors too. However, investors should be aware of the sector-specific risks and keep an eye on it and allocate the assets keeping the diversification in minds.