After leading the rally on Dalal Street yesterday, pharmaceutical stocks are back, leading from the front yet again.
After leading the rally on Dalal Street yesterday, pharmaceutical stocks are back, marching up yet again. With nine of the 10 constituents trading in the green, sectoral index Nifty Pharma surged 3.23%. It was a similar story on the S&P BSE Healthcare index as well, where 28 constituents were trading with gains of over 5%. “Overall this is a relief rally, of course people have interests in pharma and healthcare businesses, eyeing them as a great opportunity once the Covid-19 problem settles down. As we know that pharma was underperforming in the last two-three years and this is an opportunity for these stocks to be considered,” Vinor Nair, Head of Research Geojit Financial Services said.
The rally among pharma stocks could also be attributed to the recent spike in demand for the hydroxychloroquine — a drug that is being used globally to treat patients infected with Coronavirus. India companies like Cadila Healthcare and Ipca Laboratories are among the biggest producers of hydroxychloroquine in India. Earlier this month, India banned the export of the drug as the demand for domestic consumption was predicted to grow over the coming weeks. However, after US President Donald Trumps, export of the drug to certain countries has been relaxed. “In the medium term and short term, yes the news that the US wants more API and medicines from India is positive for the pharma companies but not across the board,” Nair told the Financial Express Online.
Sitting on top of the leader table among pharma stocks on the Nifty Pharma index was Cadila Healthcare with a 13.2% jump to trade at Rs 353 per share; followed by Divi’s Laboratories that was up by 5.6%, trading at Rs 2,184 apiece and Sun Pharma with 4% jump in trade to sit at Rs 434 per share. On the S&P BSE Sensex, 28 on the index constituents traded with gains of over 5%. While IPCA Labs was up over 6%, another pharma major, Aurobindo Pharma was missing in action, down by 1.2%. On Sensex, Abbot India hit a fresh all-time high after jumping over 7%. Meanwhile, Biocon, Cadila Healthcare, Dr Reddy’s, IPCA Labs and Torrent Pharma hit their respective 52-week highs.
Although pharma stocks seem to be charting an upward trajectory, Manish Hathiramani, proprietary trader and technical analyst at Deen Dayal Investments, advises caution while entering these stock right now. “There seems to be a burst in volume in the Pharma space. Most stocks seem to be seeing active participation and this is being reflected in the volumes traded. Since the stocks have been trading with a gap up openings, I would not enter these stocks on an immediate basis. I would prefer buying these stocks when the Nifty conquers the levels of 9150. This would be a significant level as the medium-term trend of the market turns bullish post this level. My stock picks in the Pharma space would then be Cipla, Cadila, Divis, and Lupin,” Hathiramani told Financial Express Online.
Although the surge in demand from the United States and other countries could pave the way for a positive outlook on pharmaceutical companies, Nair thinks that in the long-run this assessment will have to be revisited. “The covid-19 problem has shown that the USA is not absolutely self sufficient, they need to rely on Asian countries like China and India for various supplies. Now, in the short term that helps, but long-term they might try and develop their own capacities to overcome such dependence,” he said. Naird added that if the US goes on to develop more capacities in pharma space, Indian companies can only benefit if they provide in developing these capacities.