June has turned out to be a good month for investors who bought pharmaceutical stocks last month.
The pharma index is up 12.5 percent this month whereas the 50-share Nifty is down marginally and midcap index is down 2 percent. Going by the returns, pharma sector surely looks attractive but is this move for real? And more importantly, can I still buy?
To answer those questions, lets first understand what drove the index.
The pharma sector's 12.5 percent move was mainly driven by the two big sector heavyweights: Sun Pharma and Dr Reddy’s as both the drugmakers got favourable outcome from the US FDA after a long time. Out of the two, Dr Reddy’s is up 23 percent and Sun Pharma has gained 16 percent this month. The other pharma stocks like Cipla and Lupin also gained as investor sentiment improved for the entire pharma lot.
Now here's an interesting fact: While last year was considered as a bear market for pharma, stocks like Divi’s Labs actually doubled in the second half, Cadila surged a whopping 57 percent while Biocon advanced 70 percent last year.
Both Divi's and Cadila surged on earnings recovery optimism after they resolved the US FDA issues. While the move in Cadila has already fizzled out, Biocon, on the hand, has a large biosimilar story playing out and is coming out of a multi-year consolidation.
The big gains in pharma space had played out to a great extent last year, if you were in the right stocks.
The current move looks big mainly because it comes on the back of gains seen in Dr. Reddy's and Sun Pharma.
That doesn't mean that the party is over because the pharma run is here to stay. But remember the top down pharma move may be in its last leg. So as always, it all boils down to individual stock picking.Going by the trend, what we can conclude is that there will be at least 2-3 pharma stocks which would double in value by the end of this year but at the same time, 2-3 stocks may also plunge between 30-40 percent, wiping out a large part of investor's wealth. No one can predict which stocks would fall under the two categories but do remember to pick your stocks wisely and let luck do the remaining.