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Returns of BSE Healthcare Index vis a vis Sensex
Sep 4, 2017


The BSE Healthcare Index is down 24% in two years. This is a mighty fall compared to the benchmark index, which is up 23% during the same period. A downgrade in earnings estimates has led to the selloff in the pharma space.

USFDA alerts on Indian pharma companies have increased over the past few years. Regulators used to visit the plants every two years. Now they come every eight months. Increasing inspections have led to a total of 41 import alerts in the past eight years - 33 of them (80%) in just the last four years (2013-16). This clearly signifies increased USFDA scrutiny on Indian pharma firms. If that wasn't enough, increasing pricing pressure in the generics segment has dented realisations.

While short-term pain is expected, companies with strong R&D capabilities and compliant plants will do well over the long term. The uncertainties make it important to be stock specific in the sector. It is important to look for companies that have the competence and staying power to overcome the challenges.

As of today, three stocks in the pharma sector are currently a buy according to The India Letter (subscription required). These are the pharma stocks the analysts believe will outlast all others in the long run.

Data Source: Ace Equity

This Chart Of The Day was published in The 5 Minute WrapUp - Can I Get What the Stock Market Is Smoking?

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