What's Behind the Rally in Pharma Stocks? - Views on News from Equitymaster

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What's Behind the Rally in Pharma Stocks?

May 11, 2021

Pharma stocks are in focus today as a US drug-maker issued voluntary licenses to produce its Baricitinib drug in India to help combat the second wave of COVID-19 in India.

US drug-maker Eli Lilly has issued royalty-free, non-exclusive voluntary licenses to established Indian pharmaceutical manufacturers of generic medicines, Cipla, Lupin and Sun Pharmaceutical Industries to manufacture and distribute Baricitinib in India.

Lilly said it was also in discussions with several other Indian manufacturers for the potential grant of additional voluntary licenses.

In addition to voluntary licenses, Eli Lilly said it had made donation of 400,000 Baricitinib tablets immediately available through the humanitarian aid organisation, Direct Relief to the Indian government

Recent Developments that are Aiding the Pharma Rally

Market participants were tracking Sun Pharmaceutical Industries, Cipla, and Lupin on the back of above news.

Sun Pharmaceutical Industries share price was up over 2% in the morning session today and was also the top sectoral gainer, rallying 5% in the last two days.

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Sun Pharma hit a four-year high of Rs 721.90, up over 2% in intra-day trade today. The stock was trading at its highest level since April 2017.

Apart from above, healthcare stocks including hospital and laboratory operators have also been witnessing buying interest lately after the Reserve Bank of India (RBI) announced additional liquidity to key sectors participating in tackling the coronavirus crisis.

Reserve Bank of India Governor Shaktikanta Das last week said India's central bank will give Rs 500 bn in liquidity to key sectors.

Banks can provide fresh lending support to pathology labs, oxygen suppliers, vaccine makers, and hospitals under the priority-sector classification of lending.

The BSE Healthcare Index gained as much as 2.7% on the back of above news, the most in almost a month to trade just shy of its 52-week high.

Vaccine makers Cadila Healthcare and Dr Reddy's Laboratories have also witnessed buying recently after Pfizer Inc laid out a plan to turn its Covid-19 vaccine into a long-term business.

The US drug maker also boosted this year's guidance for revenue from the jabs to about US$ 26 bn from a previous forecast of around US$ 15 bn.

Pfizer said it expects to deliver 1.6 bn doses this year under contracts signed as of mid-April.

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Strong Performance by Pharma Companies

The recent gains in pharma stocks are also led by a strong performance by pharma companies in the domestic market in April, tie-ups by Indian generic players to market Covid-related drugs and expectations of a double digit growth in the March quarter.

Indian Pharma Market (IPM) sales for April 2021 showed an unprecedented 51.5% growth year-on-year (YoY).

Adjusting for the low base effect and excess Covid sales, April YoY growth is at 17.7%.

Reports suggest that there is likely a component of stocking up as many states entered lockdowns during April.

Equitymaster's View on the Pharma Sector

We reached out to Tanushree Banerjee, Co-Head of Research at Equitymaster, and editor of the premium stock recommendation service StockSelect, for her view on the pharma sector.

Here's what she has to say...

  • The second Covid wave has given a new lease of life to pharma stocks.

    As the sector continues to invest in capacities for new drugs, the profitability will depend on the companies' ability to seek USFDA approval for the plants.

    Or their ability to tie up with MNC pharma for producing variants of their vaccine.

Nifty Pharma Index Hits All-Time High

The Nifty Pharma index hit an all-time high of 14,228, after rising 3.5% in intra-day trade on Monday, led by a strong rally in stocks like Torrent Pharma, Alkem Laboratories, Cadila Healthcare, Aurobindo Pharma, Dr Reddy's Laboratories, Sun Pharma and Divi's Labs.

The index surpassed its previous high of 14,020.70, touched in intra-day trade on 7 April 2015.

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Since last month, the Nifty Pharma index has outperformed the NSE Nifty index by surging 15%, against 1.7% gain in the benchmark.

How the BSE Healthcare Index Has Performed Over Last Year

Over the last year, the BSE healthcare index has gained 61% as compared to 56% gains in the BSE Sensex.

For more detailed updates, you can have a look at Indian pharma sector report and Indian pharma sector results on our website.

You can also compare pharma companies with their peers.

Sun Pharma vs Cipla

Sun Pharma vs Lupin

Cipla vs Dr Reddy's Lab

Aurobindo Pharma vs Biocon

Cadila Healthcare vs Divi's Lab

To know what's moving the Indian stock markets today, check out the most recent share market updates here.

Monish Vora

Monish Vora is a keen student of the markets and shares his observations through his clear and concise commentary.

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