Pharma co stocks worst performers in market rally

Chennai: The rally in the stock markets has boosted the scrips of some of the worst performing sectors in recent months. But there has been one outlier—the pharma pack. Shares of pharmaceuticals companies have been the worst performers on the bourses.

While the Nifty has gained 17.4% over the last one year, the pharma index has plunged 21.6% during the timeframe. The BSE Healthcare index is the worst performer among stock indices having lost 14.5% so far in 2017.

With the outlook for the sector turning gloomy, stocks of most frontline pharma companies hit their 52-week lows on Monday. Generic pharmaceuticals manufacturers are seeing an unfavourable pricing environment in the US market due to intense competition, threat of new entrants and higher ANDA (Abbreviated New Drug Application) approvals by the US Food & Drug Administration (FDA).

“Indian pharma looks likely to operate in a difficult environment. Pharma stocks are trading at multi-year low valuations,” analysts tracking the sector said. “There was an impact on the US sales of (pharma) companies, which was profound as the US accounts for close to 40% of Indian pharma exports and remains the biggest market for Indian generics,” said Sarabjit Kour Nangra, vice president, research, pharma, Angel Broking.

“The sector is being squeezed both in the US and India. Generic prescriptions are killing the brands in India. Profit margins will only erode further,” said Kishor P Ostwal, managing director, CNI Research, an equities research provider.

“Apart from the US, back home in India, companies faced challenges on back of the government putting couple of drugs under the pricing pressure, which impacted domestic sales,” Nangra stated. “Also, many companies also posted extraordinary expenses on their R&D (research and development), which resulted in them putting up a bad quarterly performance,” he said.

Pharma stocks, however, have staged a recovery, gaining the most in Tuesday’s trading. The BSE Healthcare index rose 2.3% on Tuesday, the highest among stock indices. While the domestic sales for some companies have normalised in the fourth quarter of 2016-17, others could see some uptick during 2017-18, analysts said. “The sharp fall in prices has also resulted in the valuations of these stocks becoming attractive,” Nangra said.