Pharma stocks rally; CNX Pharma index up 5%

Thus far in 2015, CNX Pharma and S&P BSE Healthcare indices have surged 26% compared with 5% gain in CNX Nifty and 4.6% rise in the S&P BSE Sensex

Pharma stocks continued their upward march on Monday, with the National Stock Exchange (NSE) CNX Pharma index hitting a new high of 13,865 during intra-day trade, before ending five per cent higher.

The S&P BSE Healthcare index, too, touched a record high of 18,632 in intra-day trade and finally settled 4.8 per cent higher. In comparison, the CNX Nifty and S&P BSE Sensex gained around 0.9 per cent each.

Thus far in 2015, CNX Pharma and S&P BSE Healthcare indices have surged 26 per cent compared with a five per cent gain in CNX Nifty and 4.6 per cent rise in the S&P BSE Sensex.

The shares of Sun Pharmaceutical Industries rallied eight per cent to Rs 1,169, its record closing high on the NSE, on the first day of trading after completion of the Ranbaxy merger. Also, reports of Sun Pharma settling its litigation with The Medicines Company relating to US patents covering Angiomax boosted sentiment.

Outlook
Analysts say the rally in the pharma stocks has partly been due to the fact that investors have preferred to opt for safe havens in the markets as opposed to riskier bets such as capital goods and other policy-related stocks.

Explains U R Bhat, managing director, Dalton Capital Advisors: “The markets have run up quite a lot and if there is not much to show in terms of local economic growth, pharma stocks are the best bet since a lot of these companies are also doing well on the export front.”

In a recent report, analysts at Morgan Stanley maintained an overweight rating on Sun Pharma. “We remain overweight on Sun Pharma and it is on our Asia/Pacific Best Ideas list. We expect the company to continue to increase its earnings through its high-quality base business, focus on customers’ pipeline of complex products, unlocking value in Ranbaxy and making new acquisitions,” said Sameer Baisiwala, an analyst with Morgan Stanley tracking the company in his March 25 report.

Going ahead, Rikesh Parikh, vice-president for market strategy at Motilal Oswal Financial Services, suggests pharma companies are likely to report healthy earnings compared to other sectors. This is another reason for investors to accumulate these stocks.

“Historically, earnings growth for most pharma companies has been consistent and will continue to perform better at a time when the information technology sector has already sounded an early warning. There is not much recovery in the metals and the infrastructure sectors as well. If there are any upward revisions to earnings, it will largely happen in the pharma sector. Sun Pharma, Aurobindo Pharma, Torrent Pharma, Lupin,

Dr Reddy’s Labs, Glaxo Pharma, Cadila Healthcare, Divi’s Labs, Glenmark Pharma and Alembic Pharma are some stocks we prefer and have a buy rating on,” he says.