INSUBCONTINENT EXCLUSIVE:
MUMBAI: Is investor money moving from sectors like banks and consumer goods to pharma shares
Analysts said the decline in the rupee to
record lows and cheaper valuations compared to most other sectors are prompting investors to look at pharma, resulting in their share prices
rallying in the last week or so.
BSE’s Healthcare index gained 4 per cent in the last five trading sessions, against the 2 per cent
Aurobindo Pharma, Biocon, Cadila Healthcare, Dr Reddy’s Laboratories, Caplin Point and Abbott India among others have rallied between 7
per cent and 12 per cent in the last five days
The consumer goods index has dropped 5 per cent and the Bankex declined 2.5 per cent in this period.
“With the sharp depreciation of rupee
and improvement in the commentary by the company managements on the back of improving fundamentals in the US, there has been some churn in
the funds from richly valued sectors like private banks or some of the consumer stocks to pharma stocks” said Raamdeo Agrawal, joint
managing director, Motilal Oswal Financial Services.
Pharma shares have underperformed in the last two years
Between May 2015 and May 2018, the BSE Healthcare index has declined over 30 per cent
Pharma bluechips, which were trading at price to earnings ratio of 24-25 times two years ago, were at 20 times on an average a month
ago.
Fund managers said a cheaper rupee and better earnings prospects are drawing investors to the sector
“Full earnings cycle revival would start getting visible over the next 12-18 months for companies in the US space, while the domestic
recovery has been strong and its benefits on earnings are already there,” said Sailesh Raj Bhan, fund manager, Reliance Mutual Fund.
The
rupee has declined nearly 10 per cent against the dollar since April 1
Depreciating rupee benefits exporters like pharma sector, which derive most of their revenues from the US
Stocks like Pfizer, Merck, Strides Pharma Science, Shilpa Medicare, Suven Life Sciences and Aurobindo Pharma among others have surged 20 per
cent and 35 per cent in the last one month.
“Some in domestic segment of the market was at 30-40 per cent discount to leading consumer
companies, while it had all the advantages of a consumer business and hence was attractive to invest in” said Bhan.
The big challenges for
the pharma sector in the last three years were US FDA plant-related issues at many companies, US pricing pressure, rising RD spends and GST
related issues impacted earnings growth
However, most of these challenges are showing signs of abating, said fund managers.
“For the pharma sector, the worst is behind them as
the sector and growth in domestic market is back to double digit with most of the issues are getting sorted out” said Mahesh Patil, chief
investment officer at Aditya Birla Mutual Fund
“There has been some sector rotation in the last few weeks due to sharp fall in the rupee.”
