After FMCG, now the turn of Pharma stocks

Consider this, the stocks of most leading pharma companies have hit a new high or a 52-week high since August. Stocks of companies like Cipla, Sun Pharma, Lupin, Wockhardt, Strides Arcolabs, Divi's Labs, Ipca Labs, Indoco Remedies Alembic Pharma and Shasun Pharma have hit a new high on the bourses. Likewise, stocks of Ranbaxy Labs, Glenmark Pharma, Dishman Pharma, Cadila Healthcare, Unichem Labs and Venus Remedies have hit a 52-week high.

With macro economic conditions being difficult and most sectors not doing well, the market is chasing all growth-oriented companies in the defensive sectors of FMCG and now Pharma stocks, defensive sector, valuations, FMCGarma.

Given the limited opportunity in the market, the Street has now turned to pharma stocks to capture growth and value. Most pharma companies with decent growth performance has witnessed a rally in its stock. 32% of the total 148 listed pharma stocks have flared up to new or 52-week highs in the last one month.

The Indian pharma market is growing at 16-18%. Most Indian companies earn substantial revenues from outside by selling low-cost generic drugs in regulated markets. The industry is growing at an average rate of 20-22%. Many Indian companies like Sun Pharma, Dr Reddy's Labs and Glenmark are among the fastest growing generic companies in the world.

With the market now chasing the drug company stocks, the valuations of these companies is likely to become expensive. The ET Pharma Index is trading at a price to earnings multiple of 33 very close to the 34.6 P/E of ET FMCG Index.