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Nifty Pharma up 44% in 2020: The rise and rise of the sector amidst the COVID-19 carnage

Nifty Pharma up 44% in 2020: The rise and rise of the sector amidst the COVID-19 carnage

Nifty Pharma up 44% in 2020: The rise and rise of the sector amidst the COVID-19 carnage
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By Pranati Deva  Aug 12, 2020 1:11:46 PM IST (Published)

Even though the COVID-19 pandemic has taken a toll on most sectors, most pharma companies have withstood the carnage.

Even though the COVID-19 pandemic has taken a toll on most sectors, most pharma companies have withstood the carnage. The Nifty Pharma index has surged over 44 percent in 2020 YTD and 15 percent just in the last 1 month, outperforming benchmarks in both these periods.

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In comparison, the Nifty has fallen 7 percent on a YTD basis and jumped 5 percent in the last month.
"Most sectors were impacted on account of unprecedented lockdowns and limited business continuity plans (BCPs) besides a bleak demand outlook. The cases of COVID-19 are still increasing with significant velocity in many parts of the world. There is significant uncertainty as to when things will normalise," brokerage firm ICICI Direct pointed out.
However, in pharma, barring few supply related disturbances that were seen in H1CY20, we do not envisage material earnings impact in FY21, it added.
It also noted that in this unprecedented global lockdown, pharma and healthcare services, being at the top layer of essential services, remain exempted everywhere. And now that Chinese supply lines for key starting materials (KSM) and APIs are back to near normal, the supply side issues are mostly resolved.
Most stocks have also given positive returns on both YTD basis and in the last 1 month. In 2020, Piramal Enterprises was the only stock in the red, while Aurobindo Pharma surged over 100 percent. Meanwhile, Divi's Labs, Cipla, Dr Reddy's and Cadila Health were also up over 50 percent each.
Whereas, in the last 1 month, Biocon gave negative returns while Divi's Labs surged the most, up 39 percent. Cipla, Dr Reddy's, and Aurobindo Pharma rose over 10 percent each.
Going ahead, the brokerage believes that its forward earnings estimates are likely to increase for the pharma stocks as there is a change in visibility aspect specially in APIs.
Also, it expects a multiple re-rating in some stocks, especially for those with stable earnings visibility, no balance sheet stress and strong return ratios. It also likes stocks with a strong presence in some critical segments.
"On the business front, due to continued local lockdown across the country, domestic growth was impacted in 1H but is expected to be back on growth track going ahead. However, exports growth is expected to remain strong due to currency benefit, a slowdown in competition due to delay in new approvals and expected demand continuum," ICICI Direct stated
Profitability is also expected to improve due to cooling off of raw material prices, lower travel and promotional spend due to lockdowns and continuous focus on cost rationalisation, it added.
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