US polls could impact MF schemes with high pharma exposure

The turmoil for pharma companies may not be over yet as Hillary Clinton's win in the US elections is possible to trigger another sell-off

Pharmaceutical stocks have been in the limelight in the past few trading sessions. On Friday, pharma stocks crashed on reports of US probe on the price cartelisation and fears over price-led growth. The turmoil for pharma companies may not be over yet as Democratic candidate Hillary Clinton’s win in the US elections is possible to trigger another sell-off. “A Democrat sweep across Houses could pose even greater pricing challenges for the industry, and pave the way for tighter pricing regulations for both brand name and generic drugs,” says Kotak Institutional Equities (KIE).  Equity mutual funds have third-highest sectoral exposure to pharma companies, having invested nearly Rs 38,500 crore. Any sharp movement in pharma companies, therefore, adversely affects equity schemes with high exposure (see table). The pharma sector has already seen sharp de-rating in 2016 due to various headwinds. Analysts say pharma companies could be vulnerable to further correction, reports Chandan Kishor Kant.

“Emerging headwinds have resulted in US generics sector facing a massive 34 per cent derating YTD CY2016, even as Indian generics are now trading at a record 138 per cent premium to the US generics peers on one-year forward price-to-earnings multiple,” says the KIE report.