The Hindu Business Line : Value buying helps pharma stocks

Mumbai March 30 After being the under-performers for more than a year in a rising market, pharma stocks are currently witnessing an upside movement from value-buying. The sector being a `defensive' one, investors are buying these stocks in a volatile market, said analysts.

The BSE Healthcare index has risen 3.06 per cent since March 1, and most of the major pharma stocks have been up over 5 per cent month-on-month.

Though some stock-specific movements have triggered the rally in certain stocks - such as Sun Pharma, which will demerge its R&D unit into a separate company, or Dr Reddys's Laboratories on acquiring exclusive marketing rights for a new patent - most other stocks are moving up on value buying, said analysts.

The stock of Sun Pharma has seen a rise of 14.15 per cent month-on-month. Glenmark Pharma has risen 13.91 per cent and Nicholas Piramal 8.74 per cent over the last month.

Generic opportunities for pharma companies will also give a boost to these stocks, said a pharma analyst. Pharma sector stocks had been under-performers even though the companies had posted a good set of numbers.

"Now, inflation, interest rate concerns and other issues have led to reallocation of portfolios, and pharma stocks have benefited. Coupled with the expected good numbers in the final quarter, the stocks should continue their upward journey," said Ms Sarabjit Kour Nangra, pharma analyst, Angel Broking.

Betting on CRAMS

Major pharma companies will benefit from Contract Research and Manufacturing Services (CRAMS) and analysts are bullish on these companies. "Certain Indian pharmaceutical companies have partnered with global companies for research, which will benefit them," said Mr Alok Dalal, pharma analyst, India Infoline.

"For a long time, we have been bullish on CRAMS companies like Nicholas Piramal, Cadila Healthcare, and Dishman Pharma, among others," said Ms Nangra.

Pharma stocks may be hit on account of exports being affected by the strengthened rupee against the dollar. "Exports of some pharma companies may be affected but the domestic revenues for these companies will provide the hedge," said Mr Dalal.

The stocks of pharma companies, however, have not risen so exorbitantly that they will take a heavy beating if their exports are hurt, said Ms Nangra. "It is not the right time to put the red line on this sector," she added.

Also, these companies have taken action for the short-term impact of a strong domestic currency and will not be impacted, said an analyst. However, if the current trend continues for a long while, then one might see an impact on earnings, he added.

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