Bernstein has started coverage on India’s healthcare sector with a positive stance. The brokerage said innovation across niche therapies and complex speciality businesses could drive the next phase of growth for Indian biopharma companies.
The brokerage initiated on six stocks, assigning an ‘Outperform’ rating to Zydus, Lupin and Sun Pharmaceutical, while Biocon and Mankind Pharma received ‘Underperform’. Aurobindo was rated ‘Market-Perform’.
In its initiation note, Bernstein said the opportunity is tied to new therapies, wider healthcare access and operational gains from artificial intelligence adoption.
Bernstein’s ‘Outperform’ list
Bernstein said Zydus Lifesciences is its preferred pick among the stocks under coverage and grouped Lupin and Sun Pharma alongside it in the ‘Outperform’ category.
The brokerage said Indian biopharma is entering a phase where earnings growth could increasingly come from specialised products and innovation opportunities rather than conventional expansion paths.
Its analysis pointed to six segments that it believes could create the sector’s next major growth engines. These include 505(B)(2) new drug applications, orphan indications, drug-device combinations, drug re-purposing in niche therapies, metabolic peptides, and RNA and cellular therapies such as Chimeric Antigen Receptor T-cell therapy.
505(b)(2) is a regulatory pathway in the United States used to approve medicines through the US Food and Drug Administration (FDA).
Bernstein estimated these categories could add $70 billion to $75 billion to the industry size over the next decade and take the overall industry to $195 billion.
“Incremental innovation in six niches will produce Rainmakers for Indian biopharma,” the brokerage firm said.
Bernstein sees healthcare spending broadening beyond traditional treatment
A second part of Bernstein’s investment case rests on changing healthcare consumption patterns globally.
The brokerage said demand is likely to widen beyond treatment and move toward areas linked to preventive care, wellbeing, and access to newer forms of healthcare. It said this includes next-generation medicines, obesity control, mental well-being products, nutraceuticals, preventive medicine, including vaccines and wearable technologies, personal hygiene, and digital healthcare.
Bernstein added that improving healthcare infrastructure in emerging economies and rising income levels could support adoption over time.
The brokerage estimated these categories could add nearly 100 million patients globally each year and create an incremental opportunity worth about $400 billion.
“Access will be key to this theme as global workforce upgrades to next generation medicines, obesity control, mental wellbeing, nutraceuticals and preventive medicine,” added Bernstein.
Quality upgrades and artificial intelligence can lift profitability
Bernstein also pointed to manufacturing quality and artificial intelligence adoption as major enablers for Indian biopharma firms over the next decade.
According to the brokerage, Indian pharmaceutical companies are moving through a quality-led transition that could strengthen exports of innovation-focused medicines. Bernstein said its internal modelling suggests Indian biopharma could develop one of the largest networks of future-ready manufacturing plants globally.
The brokerage estimated that broader use of generative artificial intelligence across enterprises could add three to four percentage points to profit margins over the next decade, with research and development and operations contributing about 70% of the gains.
Within this theme as well, Zydus and Lupin were identified as the strongest beneficiaries.
Bernstein said, “Indian biopharma quality is on a transformation path and will anchor exports of these innovative medicines.”
Bernstein says valuations do not fully capture innovation opportunity
Bernstein said valuations in Indian biopharma have moved above long-term averages, though it believes select stocks still trade below their historical levels.
The brokerage noted that Pharma Nifty multiples are slightly above their ten-year average of 30.5x. At the same time, Bernstein argued that markets currently account for domestic growth and pricing pressure in conventional generic products in the United States, but are not fully recognising growth potential from innovation-led businesses and emerging markets.
“We believe the market is pricing in domestic market growth and price headwinds in vanilla generics in the US market, but not the rainmakers and emerging markets growth,” Bernstein said.
Bernstein’s initiation report makes the case that the next growth phase for Indian healthcare could come from companies that build scale through specialised therapies, innovation, and execution rather than conventional volume growth.
Conclusion
Bernstein said India’s healthcare sector is entering a phase where growth is increasingly tied to specialised therapies, innovation opportunities and execution capabilities rather than conventional generic businesses alone.
Bernstein also said improving quality standards, wider healthcare access and greater use of artificial intelligence across biopharma are expected to remain key growth drivers over the coming decade.
Disclaimer: The stock ratings, target expectations, and sectoral commentary discussed in this report are based on institutional research analysis and do not constitute direct buy, sell, or hold recommendations for retail investors. Indian biopharma and healthcare investments are subject to specific regulatory and clinical trial risks, and individual financial strategies or risk profiles can vary widely. Readers are strongly advised to consult a SEBI-registered investment advisor before making any specific equity or sector-specific allocation decisions.
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