Shares of pharmaceutical companies are poised to outperform benchmark indices for the fifth
consecutive calendar year, driven by a pick-up in USFDA approvals and a weak rupee, providing a double-boost to profitability and stock performance of these companies.
According to Bloomberg data, the CNX Pharma index has yielded 20.67% return so far in 2015 while the benchmark Nifty has lost 1.85% of its value from last year.
Barring Sun Pharmaceuticals, all major pharmaceutical companies have yielded 25-40% returns in CY15. Lupin is the top performer with a 43.39% gain, while Aurobindo Pharma has gained 38.4%. Glenmark and Dr Reddy’s Laboratories gave nearly 30% return in CY15.
Experts said the rate of USFDA approvals has significantly picked up post the enactment of the Generic Drug User Fee Amendments (GDUFA) in 2012.
US-based investment banking firm Jefferies has observed that the approval rate in average abbreviated new drug application (ANDA) has risen to 49 approvals per month in the last five months, compared with historical average of 37 approvals per month. Indian companies are yet to fully benefit from the pick-up in ANDA approvals.
“The share of the Indian companies in approvals continues to remain muted, and in the first five months of FY16 stood at 28% versus historical average of 32%. This is because approvals for multiple companies are impacted due to Form 483s on their key plants,” said Piyush Nahar, an analyst with Jefferies.
Cross-border acquisitions and consolidation also have also helped Indian pharmaceutical companies grow their business and presence in Western markets. This, in turn, has kept investors’ interest buoyant in the sector given the future growth outlook.
Last month, Cipla had announced buyout of two US-based drug firms, InvaGen Pharma and Exelan Pharma, in a cash deal pegged at $550 million. Earlier, Lupin had acquired New Jersey-based generic drugs firm Gavis for $880 million to boost its presence in the US. This was the largest acquisition by any Indian pharmaceutical company in the US till date.
Barring healthcare stocks, investors have also preferred to invest in technology services companies, given the weakness in the Indian rupee. The CNX IT index has beaten the Nifty performance twice, and is likely to repeat its outperformance for CY15. So far, the IT index has yielded 4.04% returns with further scope for improvement. Infosys and TCS are top performers with 14.79% and 6.23% gains, respectively.
Many domestic and international brokerages have suggested that Q2FY15 will be a strong quarter for IT companies due to seasonal strength and favourable moves in the key currencies including the US dollar. “We expect a healthy quarter for top IT companies as they are expected to post a constant currency growth of 2.4-4.6% quarter on quarter,” said Kawaljeet Saluja, head of research at Kotak Institutional Equities.