Small- and mid-cap stocks in chemical and pharma space outperform

Barring a few names, rally may not sustain in the near term

Small and mid cap stocks in the chemical and pharmaceutical sectors have been among key gainers over the last month. HDFC Securities in a recent report highlighted that a majority of the better known names within this space have gained over 20 per cent since mid-April.

The upward move, according to them, is due to the China+1 strategy adopted by international buyers, higher commodity costs due to supply disruption and Covid related demand upsurge. While some of the stock gains could sustain going ahead and are news driven, other stocks have run ahead of fundamentals and may correct or consolidate going ahead, feel analysts.

The rally in pharma names has also come about as investors seek defensives amid the ongoing pandemic and valuations of some of the small cap names were attractive. Analysts at Motilal Oswal Research believe that the outlook for companies in the formulations, active pharmaceutical ingredient or API and pharma outsourcing space across developed and emerging markets remains robust. After the recent rally however, valuations of healthcare stocks are now trading at a slight premium to its 10-year average.