3 Pharma Stocks To Watch Out For

  • Market Overview

The pharmaceutical market plays an important role in what people pay for medications and how people get medications. The global pharmaceutical market has experienced remarkable growth in recent years. By the end of 2020, the global pharmaceutical market was valued at about 1.27 trillion U.S. dollars. This is a steep increase from 2001 when the market was valued at just 390 billion U.S. dollars.

The COVID-19 pandemic has drawn even more attention to pharmaceutical companies developing coronavirus drugs and vaccines. Along with these opportunities, though, come significant risks and some markets are better for pharmaceutical companies than others.

Indian Pharma 

From 2009 to 2016, the BSE Healthcare Index jumped almost six times in seven years, which gives a CAGR of almost 30% in 7 years. However, the story turned sour in the next four years when the Healthcare index lost its major value. The 11-year CAGR of the BSE Healthcare Index still stands at a reasonable 14%. 

The pharmaceutical sector had underperformed due to several factors such as pricing pressure in the USA, stringent regulatory requirements by the US Food and Drug Administration (USFDA), and delay in drug approvals. However, Indian pharmaceutical businesses have always had a positive reputation in the global pharmaceutical market.

Indian Pharma companies have managed to be leaders in the manufacturing of generic drugs both domestically and globally. India also has a cost edge because the pharmaceuticals it produces are less expensive, helping to cut the global economy's inflating healthcare expenses.

The current pandemic's emergence has reignited interest in the pharmaceutical industry as a whole. The growth in demand for a few vital pharmaceuticals gave the sector a much-needed boost. The pharmaceutical industry is one of the least affected by COVID-19, and the high demand for vital pharmaceuticals will help companies thrive.    

Pharma companies can be attractive and bring in exponential growth because of the ever-rising industry size, scientific breakthroughs, technological advances, innovation, and healthcare becoming a critical part of life.

Both Central and State governments have increased health care spending drastically. The Finance Minister suggested a budget allocation of Rs 2,83,846 lakh crore for the healthcare and wellness sector in the Union Budget 2021.

Pharma Stocks to watch out for

Divis Laboratories (NS: DIVI )

Divis Laboratories is a Hyderabad-based manufacturer of Active Pharmaceutical Ingredients (APIs) and Intermediaries. It is India's largest provider of contract research and manufacturing services. The company focuses on growth in capital expenditure and backward integration. 

Sun Pharmaceutical Industries (NS: SUN )

Sun Pharma is the world's fourth-largest specialty generic pharmaceutical firm, with annual revenues of about US$ 4.5 billion. It is also India's largest pharmaceutical corporation, having a market share of over 8% in the domestic market. The company's expansion is fuelled by a diverse portfolio of brands and minimal product concentration.

Laurus Labs (NS: LAUL )

Laurus Labs is a pharma and biotech company that researches, develops, and manufactures active pharmaceutical ingredients for therapeutic areas of antiretroviral and hepatitis C. 

Advice for Retail Investors

The Pharma stocks need to be fundamentally sound with resilient balance sheets, a proven track record of clearance from USFDA issues, management expertise, drugs at various stages of approval in the pipeline, patents for drugs, etc. As a retail investor, understanding every aspect of the pharma business and picking the right stock is not an easy task.

ETFs can be an alternative option. ICICI Prudential (LON: PRU ) Pharma ETF and Axis Healthcare ETF are the pharma and healthcare ETFs which track the NIFTY Healthcare Index. Nippon recently launched an NFO for its Nippon India Nifty Pharma ETF which again tracks the NIFTY Pharma Index.

While ETFs offer a low-cost method to gain exposure to pharma stocks, these sectoral ETFs don’t have a proven track record when it comes to liquidity and tracking error.   

If investors fear about the liquidity and tracking error of these sectoral ETFs, active mutual funds can be another option to invest in pharma stocks. Various AMCs offer healthcare mutual funds and have provided a decent return on a longer time horizon. 

One can also consider opting for the Edelweiss MSCI India Domestic & World Healthcare 45 Index Fund which helps investors to take exposure to Indian and global healthcare companies at a low expense ratio.

Disclaimer: Team Tavaga does not have any relationship with the above-mentioned AMCs. The blog is purely meant for educational purposes. We recommend you to take advice from a SEBI Registered Investment Adviser for buying and selling stocks/mutual funds.

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