Drug companies in the pink of health, more expected

MUMBAI: Investors are reallocating money to drugmakers, and healthcare companies have boosted their status as sound bets amid challenging stock market conditions. Analysts expect many of these stocks to extend recent gains as the sector is likely to improve and a slowdown in the domestic economy could continue to whet investor appetite for companies with global exposure.

Nifty’s pharma and healthcare indices have gained 1.7% and 2.6% respectively in the past month, while the benchmark Nifty has lost 2% in the period.

“The pharmaceutical sector has shown significant improvement in recent quarters, driven by strong performance in the US generics market, strong results in branded markets and moderation in raw material costs,” Prathamesh Masdekar said. “As we move forward, most pharma companies are expected to achieve 12-15% growth in 2025, with a focus on new product launches, volume growth and growing demand for generic and branded products.”

He expects pharma companies focusing on the US business to grow strongly due to ongoing drug shortages, new product launches and a shift towards specialty products and specialty molecules. Sun Pharma, Dr. Reddy, Cipla, Divis, Glenmark Life Sciences and Piramal Pharma stocks are likely to outperform the rest of the sector, Masdekar said.

The pharma index has risen 36.2% and the healthcare index 38% in the past year. On the Nifty Healthcare index, which includes drug makers, hospitals and diagnostics companies, 11 out of 20 companies gained more than 30% in the period.

“Due to the continued rise in the dollar index, we have seen sectors like pharma and IT that have high exposure to the global market,” said Srikant Chauhan, head equity research, Kotak Securities. “There is high liquidity in the market that used to flow into these sectors, but now we are seeing overexposure to IT stocks in pharma companies, due to Trump’s policies and uncertainty around US discretionary spending.”

Chauhan said that pharma stocks are witnessing a 10-15% rally. Cipla, Sun Pharma, Apollo Hospitals and Narayan Hridalaya are among its top picks.