Investors exit defensive play, pharma slips 20% in a month
Several second-line pharma firms, especially the ones specialising in contract research, have fallen 15-20% over the past month.
By ET Bureau |
MUMBAI: For most investors, pharma counters aren't in the pink of health. Amid stiff valuations and a recent uptrend in the market, they are pruning exposure to pharmaceutical companies. Several second-line pharma firms, especially the ones specialising in contract research, have fallen 15-20% over the past month.
Pharma heavyweights like Ranbaxy, Sun Pharma, Cipla, Dr Reddy's, GlaxoSmithkline and Lupin have underperformed the benchmark Sensex, with returns ranging from a -5% to -2%. These stocks have a combined weightage of about 50% in the BSE's healthcare index. The Sensex has gained 6.2% over the past one month.
"Despite the correction in prices, pharma stocks are still trading at expensive valuations. We expect some more correction in the coming weeks," said Surajit Pal, pharmaceutical analyst at Elara Capital.
"Investors have been building up positions in pharma stocks since 2008 because of their defensive nature. The steady rise in stock valuations over the past two years have given investors an opportunity to book profits at regular intervals. We expect select pharma stocks to correct faster than broader markets in the coming days," Mr Pal added.
Another reason behind the sector's comparative underperformance is the rejection of molecules formulated by Indian firms by the US and European drug-makers.
On Monday, shares of Aurobindo Pharma fell 6% to end at 186.30 after the generic arm of Pfizer, Greenstone, voluntarily recalled two drugs researched by the Indian company. The drug was recalled as a result of wrong labelling, analysts tracking the company said.
"The uptrend in the market over the past few weeks is also forcing investors to move out of pharma stocks. Investors could be reducing their exposure to pharma counters as it is slow-moving and defensive in nature," said Preeti Samtani. vice-president (institutional equity), GEPL Capital.
But she felt that investors should continue to hold stocks of pharma companies. "It'll protect portfolios in times of deep market corrections," Ms Samtani said.
According to analysts, pharma companies engaged in contract research are witnessing a higher sell-off than conventional drug manufacturers. Share prices of companies like Jubilant Life Sciences have fallen 6-8% over the past one month.
Companies engaged in contract research are staring at low order inflows, due to the shrinking research budgets of top drug makers and bio-tech firms.
Pharma heavyweights like Ranbaxy, Sun Pharma, Cipla, Dr Reddy's, GlaxoSmithkline and Lupin have underperformed the benchmark Sensex, with returns ranging from a -5% to -2%. These stocks have a combined weightage of about 50% in the BSE's healthcare index. The Sensex has gained 6.2% over the past one month.
"Despite the correction in prices, pharma stocks are still trading at expensive valuations. We expect some more correction in the coming weeks," said Surajit Pal, pharmaceutical analyst at Elara Capital.
"Investors have been building up positions in pharma stocks since 2008 because of their defensive nature. The steady rise in stock valuations over the past two years have given investors an opportunity to book profits at regular intervals. We expect select pharma stocks to correct faster than broader markets in the coming days," Mr Pal added.
Another reason behind the sector's comparative underperformance is the rejection of molecules formulated by Indian firms by the US and European drug-makers.
On Monday, shares of Aurobindo Pharma fell 6% to end at 186.30 after the generic arm of Pfizer, Greenstone, voluntarily recalled two drugs researched by the Indian company. The drug was recalled as a result of wrong labelling, analysts tracking the company said.
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"The uptrend in the market over the past few weeks is also forcing investors to move out of pharma stocks. Investors could be reducing their exposure to pharma counters as it is slow-moving and defensive in nature," said Preeti Samtani. vice-president (institutional equity), GEPL Capital.
But she felt that investors should continue to hold stocks of pharma companies. "It'll protect portfolios in times of deep market corrections," Ms Samtani said.
According to analysts, pharma companies engaged in contract research are witnessing a higher sell-off than conventional drug manufacturers. Share prices of companies like Jubilant Life Sciences have fallen 6-8% over the past one month.
Companies engaged in contract research are staring at low order inflows, due to the shrinking research budgets of top drug makers and bio-tech firms.
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