Should You Follow the 'Big Bull' into Indian Pharma? - Views on News from Equitymaster

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The Equitymaster Research Digest

Should You Follow the 'Big Bull' into Indian Pharma?
May 13, 2016

Curious to know the next big thing, the next gold mine for investors? Well, 'Big Bull' Rakesh Jhunjhunwala is convinced it's the pharma industry. The man who made billions from shrewd stock picks such as Titan and Lupin claims pharma stocks are next big thing.

His rationale?

'Indian pharma companies supply 40% of American generics and 7% value,' he told a business daily. And all it would take for the sector to hit it big would be for the 40% to grow to 50% and the 7% to tick up a few notches.

The All-Important Circle

It's no use arguing Jhunjhunwala's thesis. The addressable market is huge, and even a small increase in market share would could a disproportionate rise in Indian pharma's topline.

However, you'd be making a big mistake if you blindly follow Jhunjhunwala into pharma stocks.

Jhunjhunwala may be an expert in understanding the industry dynamics, but the average retail investor has no clue about the workings of the industry. It reminds me of the quote from Tom Watson Sr, founder of IBM: 'I'm no genius. I'm smart in spots - but I stay around those spots.'

Likewise, Warren Buffett swears by his 'circle of competence'. He requires a thorough understanding of the industry as well as the company he invests in. The slightest of discomfort and he will pass up the stock no matter how big the potential upside.

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