Pharma stocks react to FDA but rise again: Prateek Agarwal, ASK Investment Managers

The pharma sector is hit by the US Food and Drug Administration (FDA) but everytime the market senses a resolution, it moves up again, says Prateek Agarwal, Business Head & CIO, ASK investment Manager. In an interview to ET Now, he explains why he is overweight on pharma stocks.

ET Now: As a house you are overweight on pharmaceuticals but if I look at the news flow for the pharma sector, company after company is getting hit because of FDA problems. It started with Ranbaxy, then it was Sun Pharma and later on, Wockhardt. The latest casualty could be Strides Arcolab. What is going on?

Prateek Agarwal: This is one risk that this sector faces. Practically every company in this space has been hit with FDA observations.

The thing is that FDA keeps on improving its guidelines. The companies manufacturing drugs have to match up to those standards. But that's a part and parcel of the game. The upsides are large, the opportunity is big and it will continue to be so for several years. Hence, this is what is attractive about the pharma space.

A good way of looking at the space would be after an FDA inspection. If the inspection is through, the risk that stays is basically that of time - how long it would be before the issues get resolved. FDA gives observations, the stock reacts but then with time, as market senses that a resolution could be closer, it moves up again.