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The pharma sector was in pain since late-2018 and slipped about 69 percent to the March lows this year. However, the tables have turned for this space after the onset of huge demand for the coronavirus treatment.
The coronavirus pandemic produced a challenging crisis for all sectors except one i.e. pharmaceuticals. The pharma sector was in pain since late-2018 and slipped about 69 percent to the March lows this year. However, the tables have turned for this space after the onset of huge demand for the coronavirus treatment.
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In April, the Nifty Pharma index soared nearly 30 percent. Such a similar rally was seen back in 1999 when the index had surged nearly 32 percent in a month.
Investors have suddenly rushed to bank on the pharma stocks over anticipation of pharma companies coming up with a treatment/vaccine to stop the spread of coronavirus.
The most rally till now has been witnessed in the smallcap pharma stocks like AstraZeneca Pharma, Suven LifeSciences, Solara Active Pharma and others which have zoomed over 100 percent. While large cap like Sun Pharma, Glenmark, Lupin, Cipla, Aurobindo Pharma and Biocon have rallied between 30-60 percent in April.
The big rally is also due to government's move of including pharma drugs in essential services. After the announcement of nationwide lockdown, people started panic buying, stocking up drugs and other health related products. This high demand will bring in a positive flow of revenues for the pharma companies and their effort of doubling production.
"While pharma manufacturing operations are now running at 45-50 percent efficiency levels, supply-side logistical issues have largely resolved. The government has laid out a plan to invest Rs 100 billion to incentivise
API production in India; both, small-scale manufacturers and large
pharma companies will be incentivised," said Sudarshan Jain, secretary general of Indian Pharmaceutical Alliance (IPA) to IIFL Securities.
Most brokerages believe that the demand visibility of the pharma sector will continue in the future too.
Nirmal Bang in its report said the sector is on track with suppliers resuming and sustaining operations. "In view of an improving situation, we revise our target valuation multiples. We are also anticipating a favourable shift in demand for made-in-India pharmaceutical products as countries look to diversify their supply chain," it added.
The supply of anti-malaria drugs along with others to the US has helped the country to treat some of its COVID-19 patients. For more drug exports, the US Food and Drug Administration (USFDA) is clearing more and more manufacturing facilities in India.
In fact, in 40 days, USFDA has cleared 11 facilities in India, said Jefferies. It also said the US health regulator would clear most warning letters in 18 months