Pharma stocks regain investors' interest

'Plenty of growth opportunities for generic cos'

Mumbai, May 26 The market might be in a very volatile phase but the pharma stocks seem to be quite fortified from the market volatility.

While the BSE Sensex declined 4.54 per cent during the last one month, the BSE-Healthcare has been up 0.60 per cent during the same period.

"The pharma stocks are defensive stocks and they tend to outperform most stocks during a bearish phase," said Mr Bhavin Shah, Research Analyst, Dolat Capital Ltd.

"Pharma companies keep reporting sustainable numbers. Their stocks have a steady, strong and sustainable performance; and so in times of bearish markets they provide capital protection," said Mr Shah.

"The pharma sector had not performed very well earlier as the growth opportunities were lying in other sectors. So when the other stocks were battered during the past couple of months, these stocks showed both stable earnings and earnings visibility," said Ms Sarabjit Kour Nangra, Research Analyst, Angel Broking Ltd.

With life expectancy rates increasing and with life-style related disorders on the rise, there is always a market for pharma products. So even if the economy slows down these stocks are bound to do well, said Ms Anita Gandhi, Head of Institutional Business, Arihant Capital Markets Ltd.

The worst period for generic companies was CY05-CY07, says a Motilal Oswal research report. This was due to increased competition, innovators making aggressive price cuts, currency appreciation (in the case of exporters) and very few new launches due to a lesser number of patent expiries.

Growth opportunities

This has changed now, according to analysts, as there are a number of growth opportunities for generic companies.

"Lot of products are scheduled to go off patent in the next few years leading to a lot of growth opportunities in this segment," said Ms Nangra.

Indian generic companies have also initiated cost-cutting measures and implemented de-risking drives, mentions the Motilal Oswal report.

Outsourcing opportunities are also increasing and companies are also ramping up their Contract Research and Manufacturing Segment plans, said analysts.

"Indian companies gain due to cost advantage," added Ms Nangra.

MNC pharma companies also stand to gain from a strong patent regime, said analysts.

"They have large amounts of cash in their balance sheets and have delivered high dividends," said Mr Shah.

The pharma companies also command a huge domestic market which is growing by more than 9 per cent, and this provides a cushion against the vagaries of the international markets, said an analyst with a broking firm.

Pharma stocks seem to have caught the investor's interest once again as a capital protection option due to the long-term steady returns they are able to provide, feel analysts