How pharma stocks helped the healthcare index soar

Rising interest from FIIs, depreciated rupee, growth prospects behind rise

A dozen pharma stocks, including Dr Reddy’s, Aurobindo Pharma and Novartis India, touched a  52-week high on Monday, helping the BSE Healthcare Index grow nearly 17 per cent in about last five weeks. Rising interest from institutional investors, depreciated rupee, growth prospects in the domestic market have all contributed to this, say experts.

“All companies in the pharma space have shown phenomenal gains. The story of this sector remains strong due to a depreciated rupee vis-a-vis the dollar. The US market is becoming bigger for many companies. All factors are positive and augur well for the sector. A number of funds have been investing in the Indian pharma companies. The domestic market is estimated to have grown by 16 per cent in H1. These are rare combinations for any industry,” said Sujay Shetty, leader of the pharma, life sciences and medical devices practice at PwC. The US is the largest export destination for Indian pharma companies.

Foreign institutional investors (FIIs) have been betting big on the Indian pharma firms. In the quarter ended June 30, the FII holding in Lupin stood at 36.7 per cent compared to 34.7 per cent in the March quarter and 31.7 per cent in the corresponding quarter last year. In Cadila, the FII holding was seven per cent for the June quarter against 5.9 per cent a year ago.

FIIs have increased the stake in Dishman Pharma from 10.8 per cent in the June quarter of 2014 to 14.5 per cent this year.

The BSE Healthcare Index, represented by listed pharma and healthcare companies such as Sun Pharma, Lupin, Dr Reddy’s and Cipla, grew 16.7 per cent since June 12 (when the index touched a 52-week low) to 17,906 on Monday. During the same period, the BSE Sensex grew by less than eight per cent.

The BSE 200 index, a more representative benchmark, also expanded by eight per cent. Several companies are trading at a new high in the pharma sector and have appreciated by high double digits in a month.

Saion Mukerjee, healthcare analyst at Nomura Financial and Securities, says he is not aware of a new trigger that is driving these stocks. “Prospects and challenges remain what they were. There are opportunities for growth in both India and the US, the two main markets. There is also a scope for mergers and acquisitions in the space,” he said.  

While the fundamentals remain strong for the industry, concerns continue to linger in the form of US Food and Drug Administration crackdown on quality issues at exporting plants, domestic regulatory issues related to price control, and product approval.