Pharma stocks gained 55% since lockdown

As of 30 June 2020, both the S&P BSE Healthcare and Nifty Pharma, the benchmark indices tracking pharma stocks, have jumped by about 52.5% and 55%, respectively, from the lows seen on 23 March 2020.

Hyderabad: When Indian stock market was reeling under the pressure of a panic selloff after the Coronavirus pandemic threatened to send the Indian economy into possibly the worst slowdown since the 2008 financial crisis, there was one sector that was quick to take a U-turn and has almost been unstoppable since then – the Indian pharmaceutical sector.

As of 30 June 2020, both the S&P BSE Healthcare and Nifty Pharma, the benchmark indices tracking pharma stocks, have jumped by about 52.5% and 55%, respectively, from the lows seen on 23 March 2020. The broader Sensex and Nifty have also recovered during this period, though by a milder 36% and 37%, respectively.

Noticeable is the kind of rally seen in key pharma stocks like Glenmark Pharmaceuticals Ltd that has skyrocketed a massive 130% from its 23 March low, or Aurobindo Pharma Ltd that has zoomed 165% during the same period. Meanwhile, Cipla Ltd shares have gained nearly 67%, Sun Pharmaceutical Industries Ltd rallied 44% and Dr Reddy’s Laboratories Ltd was up 41% during that time.

But what really has been fuelling this kind of a rally? Experts were attributing the initial recovery in stock prices of pharma companies to rising demand as customers and pharmacies were seen stocking medicines amid lockdown. “The demand for drugs like paracetamol, ibuprofen, and multivitamins, among others has skyrocketed ever since the coronavirus outbreak,” Angel Broking said in its report. However, markets could sense that there is more to this than meets the eye.

In April, India began shipping the anti-malarial drug hydroxychloroquine to the US where President Donald Trump touted it as a potential weapon against the Covid-19 disease. Indian government had earlier banned most exports to secure its own supplies, drawing warnings of retaliation from Trump.

Such kind of focus on hydroxychloroquine made its two major Indian manufacturers -- Zydus Cadila and Ipca Labs – the market favourite that time, turning around the sentiment for the otherwise beaten-down stocks as well as the sector. Consequently, Zydus Cadila and Ipca Labs have risen 25% and 21%, respectively, since 23 March 2020.

The rally in Indian pharma stocks has also been supported by a similar trend seen globally. The Dow Jones US Pharmaceuticals Index has jumped around 25% since the lows seen on 23 March 2020, while a spike in prices of pharma stocks has also been seen in China and Japan, adding weight to the overall positive sentiment around the sector.

But after such a sharp uptick, can investors continue to expect the positive momentum in pharma stocks in the near future as well? Sankarsh Chanda, managing director of wealth management platform Savart, said: “We are witnessing a large number of requests for investment in pharma stock from our investors. We are, however, treading cautiously as the valuations have already risen sharply over the last few months and are only sticking to 1-2 high-quality, undervalued names in the space.”

(ETV Bharat Report)