Earnings of pharma companies have fallen more than their stock prices, says hedge fund manager Samir Arora

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Updated: December 1, 2017 11:47:50 AM

While some market experts have predicted a turnaround in the prospects of pharma companies, Samir Arora of Helios Capital says that pharma stocks are a gamble, and the investor is now staying away from investing in the space.

Samir Arora of  Helios Capital says, “While the pharma stocks have corrected, their valuations have not corrected as their enings have fallen much more than their stock prices.” (Image: Reuters)

While some market experts have predicted a turnaround in the prospects of pharma companies, Samir Arora of Helios Capital says that pharma stocks are a gamble, and the investor is now staying away from investing in the space. In an interview to ET Now, Samir Arora, Fund Manager, Helios Capital said, “While the pharma stocks have corrected, their valuations have not corrected as their enings have fallen much more than their stock prices.”  In a recent interview to ET Now, Abhimanyu Sofat ,VP- Research, IIFL said, “The basic concern with the overall pharmaceutical sector has been what is happening in the US in terms of pricing and we still are not seeing any signs of abatement of reduction of pricing on the generic side.”

However, some market voices say that there could be rebound in the sector.  In an interview to CNBC TV18, Rakesh Jhunjhunwala said last month, “Everything that could go wrong for the pharma sector, has gone wrong. The US market got very competitive. Rupee depreciated, and the pharma companies had very bad sales domestically due to GST. I would say the worst in behind us. The rebound will depend a lot on the individual companies.”

On similar lines,  Saurabh Mukherjea of Ambit Capital told ET Now, “What we’re telling clients is look at the sectors where nobody wants to invest. Look at IT and Pharma, there are very high quality franchises, which are trading at 14, 15-16 times earnings, with solid cash generation, high 20’s Return on Equity, both in the large-cap IT stocks, and mid-cap pharma stocks. There’s plenty of value there, but investors currently don’t want to look there.”

S Naren of ICICI Mutual Fund too predicted a turnaround in the fortunes of the sector. “We are going to see that in the next three years, rupee is likely to go back to the old depreciation situation. The two principal exports of India are IT and Pharma. Actually they have got hurt in the last four years due to a flat rupee. We think they will gain out of a flat rupee depreciation from here over the next 2-3 years,” S Naren told ET Now last month.

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