Pharma sector is an OUTPERFORM call for next 5-6 years

A health crises like COVID19 has brought the focus back on pharma & healthcare. The sector was recovering well during late 2019, but it really caught fire post discovery of COVID virus. The pharma & healthcare stocks have done well around the world.

Nifty Pharma index is has delivered 24% absolute return over last 1 year. Nippon Pharma & ICICI Pru Pharma have yielded 35% and 37% respectively during last 1 year. Stocks like Dr. Reddy’s, CIPLA, Aurbindo Pharma, Torrent Pharma, Lupin & Cadila have delivered more than 50% each over last 6 months.

Despite the recent run up in values, the story of pharma is far from over. There are many things that are likely to go in favour of this sector. The sales are improving and margins have stabilized after a long phase of decline. The valuation also looks reasonable when compared to the broader market.

According to Milind Karmakar of DALAL & BROACHA, Pharma is a good cyclical play at present. He says that everything moves in cycles so in the’90s we had many pharma companies going up 50 times, 100 times and when they started exporting to the US and then again they came down. Then again around 2005 to 2010-2015, they had a good run and after that there was a big decline in most of the pharma companies. In the last couple of quarters, they have started doing well and pharma as a space could be interesting for investors, not for traders.