The pharma sector stocks are seeing significant pressure this morning after US President Donald Trump outlined a phased tariff plan for imported generic medicines, giving drugmakers a two-year window before duties take effect.
A quick look at the Nifty Pharma Index indicates that the broad index is down close to 2%, with large-cap pharma stocks like Cipla, Dr Reddy’s, and Sun Pharmaceutical Industries down between 1-2% each. The cut is deeper across several mid- and small-cap counters like Gland Pharma, Piramal Pharma, Ajanta Pharma and Glenmark Pharmaceuticals, which are down as much as 2-3% each.
What led to selling pressure in pharma stocks
One of the key reasons why pharma stocks are under pressure is Trump’s statement earlier that indicated that generic drug imports by the US are likely to face a 100% tariff from 2028, while tariffs would be at zero for 2 years before that.
Taking to Truth Social, Trump said the policy is aimed at bringing generic pharmaceutical production back to the United States, with penalties for companies that choose not to establish manufacturing plants and equipment within the specified timeframe.
His statement read, “Effective August 1, 2026, all Generic Drugs being brought into the United States will continue to have a ‘Tariff of zero per cent’ for a two-year period of time, after which the tariff will be raised to 100% for a one-year period of time and 200% thereafter.”
According to his post, “the objective of this Policy is to protect the people of the United States. The Policy on Patented, Branded, or Innovative Drugs, which has been so successful, will remain as is,” he noted.
Additionally, pharmaceutical manufacturing facilities are currently being built across the United States at an unprecedented pace.
How will the move impact the Indian pharma sector?
The big question is how Trump’s recent statement on generics imports in 2 years impacts the pharma companies. Tushar Manudhane, Pharma & Healthcare Analyst, Institutional Equities, Motilal Oswal Financial Services, pointed out that, “Multiple Indian companies have subsidiaries in the US and there is considerable difference in the pricing at which goods are transferred to the US market and then subsequently sold in the US market. The tariff is presumably at the pricing at which it enters the US market.”
He explained that, “90% of generic prescriptions are imported by the US, effectively increasing the tariff for everyone (as and when it happens) supplying to the US market, and it is not India specific. Also, the concept of outsourcing to countries like India is based on 40-60% lower cost of manufacturing in India compared to that in the US.”
According to him, the “tariff implementation would still fall short and would not lower this advantage of low-cost manufacturing from India. Even if the manufacturing plant is set up (which itself takes at least 2 years), it would be required to undergo plant inspection and subsequent product approval cycle of at least 12-15 months, further prolonging any competition to kick in.”
As a result, he believes that these factors “question the economic viability of setting up a manufacturing plant in the US for generics.”
Conclusion
The big question is, if implemented, how would it impact generic costs? Most market observers believe one needs to adopt a wait-and-watch approach to ascertain how the situation evolves. Moreover, economic scalability is another concern. They believe the current selling pressure is more of a sentimental impact.