NEW DELHI: With the rupee on a steady decline, investor focus has turned to the export-oriented businesses, and the pharma sector has hogged all the limelight all through January.
The market capitalisation of the BSE healthcare index, an index of the pharma companies listed on the bourse, surged by Rs 1.3 lakh crore in January even as the global financial turmoil took its toll on the market.
The index has gained over 6 per cent in the past five sessions, as investors ran to rebalance their portfolios towards defensive plays. Index constituents such as Sun Pharma, Elder Pharma, SPARC and Ajanta Pharma have climbed as much as 21 per cent over the past one week.
"We have been seeing a situation where there is sudden death for some of the pharma companies. Suddenly, warning letter comes and all hell breaks loose. So, we have decided long back not to buy a pharma company when things are going well. We are what they call undertakers, who benefit from the plague. We enter a stock after the warning letter comes, that has been our approach," said Rajeev Thakkar, CIO, Parag Parikh Financial.
"Several of the regulatory issues, be it on generic drug prices or FDA issues, are already well known, and already well factored into the prices of the pharma stocks," said Govindarajan Chellappa, HoR, Jefferies India.
One of the factors that lends logic to investors' preference for pharma stocks is the fact that the domestic currency has seen massive value erosion over the past few months. The rupee recently hit the 68 level and is trading at its two-year low. In an environment like this, export-led sectors are bound to do well, say experts, and pharma is one of them.
"The sector is beneficiary of a slightly weaker rupee in a relative context, as it does help exporters," said Harish Krishnan, Kotak MF.
Regulatory issues hang as an albatross around the neck of the pharma companies, as reflected in the plunge seen in the shares of Sun Pharma or Dr Reddy's in the recent past.
Raamdeo Agrawal of Motilal Oswal Financial, though, believes that the "size of the opportunity is massive" in the space despite the regulatory hurdles.
"The world needs more and more pharma goods, more patents are going off, creating a huge opportunity. The number of molecules available for generic production are increasing. As the world is becoming more prosperous, it will need for more medicines. So growth of medicines -- say 7-8 per cent, or 10 per cent all over the world -- is going to be continuous. India's competitive advantage is huge. There is no country which can challenge India," he said.
Madhusudan Kela of Reliance Capital advises investors to start differentiating between companies in the sector. "In the pharma space, we will have to start distinguishing now. There was a complete bull run in pharma from 2008 when the market cap of the sector was Rs 1 lakh crore and it went to Rs 10 lakh crore as a whole. In this timeframe whatever you bought in pharma, you made money," he said.
"I think one has to start differentiating now because normal pharma companies, which were making money by just exporting to the US and in a normal generic market, will be exposed to a lot of competition," he said.
However, he acknowledged that "there is lot of a opportunity in the pharma space, which is going through a complex journey of generics."
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