What’s should be your strategy for primary market in FY25?

The pharmaceutical sector emerged as a booster shot for the domestic equity investors as 98% of stocks have managed to deliver a positive return since April last year. With a rally of 1305%, Venus Remedies emerged as top gainer in the list. Shares of the company have climbed to Rs 316.3 on April 26 from Rs 22.5 on March 31, 2020. The scrip has rallied nearly 110% in the ongoing calendar year.

Overall, 98 stocks managed to outperform the benchmark BSE Sensex which rallied 64% since April last year.

Other top gainers

Biofil Chemicals & Pharmaceuticals (up 902%), Neuland Laboratories (up 762%), Bharat Immunological (up 635%), Laurus Labs (up 620%), Aarti Drugs (up 467%), Auro Labs (up 228%) and Jubilant Pharmova (up 224%) stood among other major gainers in the sectors. As many as 14 stocks are scaled their fresh record highs in April so far.

Factors

Commenting on the robust performance of pharmaceutical stocks, Siddhartha Khemka, Head-Retail Research, Motilal Oswal Financial Services said, “The healthcare and pharmaceutical space has been in focus since last two months due to the sharp rise in Covid cases, leading to increased demand for various medicines including vaccine and medical services.”

He further added that continued demand in generic active pharmaceutical ingredients (APIs), increasing exports and new product launches are few reasons due to which the pharma companies have delivered good returns in the past.

Outlook

Market experts maintained their bullish views on the sector considering rising Covid cases in the country. They also believe that increasing traction in contract research and manufacturing services (CRAMS), increased capacity utilisation, and a strong Abbreviated New Drug Application (ANDA) pipeline provide a better outlook for the pharma sector.

“Strong brands have been gaining market share due to the inability of small players to supply medicines. The ANDA pipeline remains healthy, providing growth avenues going forward. The vaccine is also providing new opportunities. The healthcare universe is expected to continue its strong earnings momentum,” said Khemka.

On the other hand, Surajit Pal, Senior Research Analyst, Prabhudas Lilladher, added that unlike the year 2020, a few companies will stand to benefit from short term gains due to an additional demand for Covid19 drugs.

Stocks to bet on

Pal thinks that companies like Lupin, Sun Pharma, IPCA, Eris Life and Indoco Remedies are good investment bets. On the other hand, Khemka believes that the outlook in formulations, API, contract development and manufacturing organisation (CDMO) for developed and emerging markets remain robust.

He expects re-rating to continue for companies with a differentiated business model, robust ANDA pipelines, a better outlook for APIs.

“We are positive on Aurobindo Pharma, Lupin and Laurus Laboratories. The vaccine is also providing new opportunities for players like Cadila Healthcare and Gland Pharma,” said Khemka.