Pharma & Healthcare Sector To Outperform
First Published on April 6, 2020
Pharma and Healthcare sector in India is likely to outperform most other sectors in the coming days, in view of the factors outlined below:
Investments in healthcare Infrastructure (hospitals, medical devices) may emerge as a long term winner as Govt. realises, the need to urgently ramp up healthcare facilities. I will not be surprised to see allocation to this sector significantly go up (by up-to 1% of GDP or even more).
As regards the Pharma segment, it has been beaten down since last three/four years and currently trades at attractive valuations.
- The domestic formulation business of pharma companies will not be impacted by COVID 19. That is a big positive.
- API business to some extant will shift from China as everyone will like to diversify their supply chains.
- US Generics business for Indian pharma companies may also do better as pharmacies may want to build stock. At the same time, US FDA may relax some of their strict compliance requirements.
- Indian companies may gain significantly (IPCA labs, Cadilla ) from the requirement of hydroxychloroquine / BCG vaccine, if export is permitted. They can end up making substantial margins.
- We recommend avoiding multinational pharma companies as they trade at expensive valuations.
The best way to take Pharma and Healthcare exposure is through a Pharma sector fund rather than direct equity investments, in order to:
- Avoid significant individual company risks (FDA/corporate governance etc) that is reduced in case of exposure through Fund.
- At the same time, it should be noted that without extensive research, It is difficult to identify winners in this segment.
To sum up, we have significant exposure to Pharma and Healthcare funds for our customers, and we recommend continuing holding the same.