Pharma in bitter health: Stocks sink upto 38% in 2025; time to bottom fish?

Among stocks, Natco Pharma plunged 37.85%, Ipca Labs 22.43%, Aurobindo Pharma 17.99%, and Sun Pharma 14.30%. Other laggards include Lupin (13.25%), and Dr Reddy's (5.17%).

Concerns surrounding the demand for Indian pharmaceutical drugs in the US, traditionally the largest market for Indian generics, left investors' portfolios in bitter health this calendar year.

 

Against the Nifty50's rise of 6.21 per cent year-to-date (YTD), the Nifty Pharma index has slipped 4.57 per cent, ACE Equity data shows.

 

Among stocks, Natco Pharma plunged 37.85 per cent, Ipca Labs 22.43 per cent, Aurobindo Pharma 17.99 per cent, and Sun Pharma 14.30 per cent. Other laggards include Lupin (13.25 per cent), and Dr Reddy's (5.17 per cent). 

 

While the long-term fundamentals of Indian pharma remain intact, most experts agree the sector's recovery will be gradual and uneven. Until clarity emerges on US regulatory issues and pricing pressure, selective exposure is seen as the safer route, they said. 

 

 

Indian Pharma at crossroads

 

According to G Chokalingam, founder and head of research at Equinomics Research, the underperformance of pharmaceutical stocks is mainly due to two factors: realisation from exports to the US being under significant pressure, and a potential tariff threat from the US on Indian pharmaceutical exports.

 

"While the 200 per cent tariff hinted at by US President Trump is unlikely to materialise fully, pricing pressure on Indian pharma products in the US is almost certain," he cautioned.

 

Add to it, slowing growth in US generics and rising regulatory scrutiny has also plagued the sector.

 

Sun Pharma's Halol and Mohali sites remain under United States Food and Drug Administration (USFDA) observations, while Lupin and Cipla continue to face stiff competition in key respiratory and chronic care molecules in the US. Meanwhile, the pace of new drug filings (ANDAs) has slowed, reflecting increasing selectivity by Indian drugmakers amid tightening margins.

Domestic demand offers some relief

 

Amid global headwinds, domestic demand has become the sector's anchor. According to a Nomura report, the India Pharmaceutical Market (IPM) grew 8.7 per cent year-on-year (Y-o-Y) in August, the best monthly performance in seven months, led by strong growth in therapies like respiratory, cardiac, and anti-diabetics. Pricing contributed 5.6 per cent to growth, while new product launches added another 2.4 per cent.

 

Companies like Sun Pharma and Torrent Pharma have capitalised on this trend, delivering double-digit domestic growth of 13.7 per cent and 13.5 per cent, respectively, outpacing market averages last month.

 

"The domestic part of the sector is expected to outperform exports," said Narendra Solanki, head of fundamental research, Anand Rathi. "Chronic segments like respiratory, cardiac, and oncology continue to show healthy demand, supporting overall domestic growth," he added.

 

Bottom fishing or wait and watch? 

Against this backdrop, analysts advise investors to have a cautious, stock-specific approach even as many pharma stocks are trading below their five-year valuation averages.

 

"There doesn't seem to be a sector-wide trigger for a rebound yet, so moves will likely remain stock-specific with some technical bounces," said Ravi Singh, senior vice president of retail research at Religare Broking.

 

The sector, he added, hasn't even played its usual defensive role this year. "While valuations are turning more reasonable, selective exposure is still a better strategy than broad-based bets," he suggested.

 

Notably, companies with strong domestic portfolios or niche launches have held up relatively better.

 

"Glenmark has stood out with strong momentum, while Zydus, Torrent, and Abbott India look better placed. The rest may take longer to recover until headwinds like pricing and regulatory overhang ease," Ravi Singh said.

 

Likewise, Chokalingam advises focusing on domestic-heavy companies and those trading at less than four times enterprise value to sales (EV-to-sales), particularly those less exposed to US regulatory uncertainties.

 

That apart, execution in high-margin segments like biosimilars and contract development and manufacturing (CDMO) is seen as critical for rerating. Nuvama Institutional Equities suggests the renewed push for the Biosecure Act in the US, which aims to reduce reliance on Chinese biotech supply chains, could favour Indian CDMO players like Divi’s, Neuland Labs, and Jubilant Pharmova.