Before we start explaining the reasons as to “why the pharma stocks are rising in FY21?”, lets first briefly understand the pharma sector of India so that we get an idea of what and how much we are talking about in terms of business or money.
India is the largest provider of generic drugs globally. Indian pharmaceutical sector supplies over 50% of global demand for various vaccines, 40%of generic demand in the US and 25 % of all medicines in the UK.
The world has seen an impact of the COVID-19 on the stock markets globally. While many indexes and stocks fell, the pharma sector outperformed and also rose during this period. This unusual rise is not short lived and is showing a rise since 4-5 months from March 2020 to July 2020. This run is still continuing. The question that comes to our mind is why are pharma stocks rising?
The first reason is global trends. The pharma stocks are rising globally. Not only in India, the US pharma Indexes showed growth since march 2020. The Pharma sector has been seen as a good option for growth during the COVID-19 times and this trend is prevailing globally.
The next reason is stability in the sector. Unlike Auto and other related sectors where profits of the company depend on the economy, the pharma sector has been in stable outlook during all conditions of the economy. This is because medicines are required in all situations and there is a stable demand for it. This has led to demand in the sector even in difficult times of the economies.
Third reason is that India is the main source of medicines globally. And this has made Indian pharma companies show growth and demand in their stock value from all investors. Further during COVID-19 times the pharma industry has been the prime sector for growth due to demand in various drugs even though no vaccine has been fully successful. Not to forget that we are in the process of making the covid vaccine. If successful, the demand will be huge and so will be the growth in the pharma sector.
Last but not the least people are looking for stable options to invest money in and the pharma sector is the most stable sector in the current situation.
The pharma sector looks good for growth in the long term. Good results of many pharma companies have been an indicator of its robustness in economic value and thus has been considered valuable stock entities in the current scenario. The rise should continue for some more time till the market has peaked in the pharma industry. With very few options to invest in this difficult time of economic condition the pharma sector is an attractive investment segment.
Medicine spending in India is projected to grow 9-12 per cent over the next five years, leading India to become one of the top 10 countries in terms of medicine spending.
Going forward, better growth in domestic sales would also depend on the ability of companies to align their product portfolio towards chronic therapies for diseases such as such as cardiovascular, anti-diabetes, anti-depressants and anti-cancers, which are on the rise.
The Indian Government has taken many steps to reduce costs and bring down healthcare expenses. Speedy introduction of generic drugs into the market has remained in focus and is expected to benefit the Indian pharmaceutical companies. In addition, the thrust on rural health programmes, lifesaving drugs and preventive vaccines also augurs well for the pharmaceutical companies.
Reference: https://www.ibef.org/industry/pharmaceutical-india.aspx
