Nifty Pharma hits new record high for second day in row; can you still buy into pharma stocks?

In a buoyant market mood after the release of the latest Fed meeting minutes, Indian equities are largely witnessing broad-based buying as the likely interest rate-cut will see foreign funds inflow into India. Amid this market optimism, Nifty Pharma index has hit the new record high of 22,661, gaining as much as 0.37 per cent from the previous close. Nevertheless, at the time of writing the copy, the index witnessed profit booking and was down 0.14 per cent.

Of the 20 stocks constituting the index, there was mixed action witnessed, with 8 of them trading in the green, while 12 of them were in the red. Stocks that topped the gainers list from the pack included Natco Pharma, Abbott India, Mankind Pharma, Sanofi India, Aurobindo Pharma, Laurus Labs, JB Chemicals and Pharmaceuticals and Biocon. Natco Pharma saw the most gains of over 5 per cent, followed by Abbott India.

Meanwhile, stocks like Dr. Reddy's, Gland Pharma and Granules India traded with a cut of 1 per cent, while others such as Lupin, Divi's Laboratories, and Ipca Laboratories saw marginal losses.

Nifty Pharma Index has gained almost 34 per cent YTD hitting record highs, clearly indicating the strong investor interest in this sector

Earlier post the correction, Apurva Sheth, Head of Market Perspectives and Research, SAMCO Securities held that one should switch from high beta aggressive stocks and switch to defensives from the Pharma space. Pharma companies have declared fabulous set of quarterly numbers in Q1FY25. We believe that Pharma is an excellent play considering there is earnings momentum and safety too in case volatility rises, he added.

The expert betted Lupin and Torrent Pharma as top picks.

Pharma sector Q1 review

InCred Equities in its note on the Q1 performance said that companies within its coverage reported in line-to-better results. The brokerage companies’ revenue grew by 11.7 per cent YoY and 5 per cent QoQ while the margins expanded by 240 bps sequentially and YoY. Furthermore, the brokerage's broader thesis on the coverage universe remains intact, with the US business largely holding up its strong momentum, reduced raw material prices leading to improved gross margin & sustenance of operating margin, and the domestic business recovery on the cards in FY25F.

Sector outlook

InCred remains broadly optimistic on the sector and expects the outperformance to largely continue, with the momentum sustaining in India/US markets as well as on the margins front. The brokerage added that it prefers stocks having earnings momentum likely staying strong in the medium term.

Should you buy pharma stocks?

Aamar Deo Singh, Sr. Vice President of Research, Angel One suggests that overall, as an investor, a couple of pharma stocks should definitely be part of one’s portfolio, as they help in diversification of risk and secondly, this is one of the few defensive sectors as well. Further, if one is looking at investing from a long-term perspective, spanning 5 years or more, adding a couple of leadership pharma names, like Dr Reddy’s, Aurobindo, Lupin, to name a few, in an SIP mode, could be a good idea, given that most of these stocks are trading at record highs.

 InCred Equities remains bullish on Aurobindo Pharma, Ajanta Pharma, Lupin and Zydus Lifesciences, while Divi’s Laboratories can be a dark horse with optionality from the Biosecure Act.