While the Sensex yo-yos in bouts of uncertainty, the pharmaceutical sector may end up outperforming the benchmark and give investors an offbeat opportunity, experts say.
While the price-earning (P/E) ratio for the BSE healthcare index stood at 43.11 at the end of trade on Tuesday, the P/E ratio for the Sensex stood at 17.27. Investment analysts think there is more value in pharma companies, looking into a six-year horizon.
P/E ratio is the ratio between the market price and earnings per share. The ratio indicates the market price of a share vis-a-vis its earnings. It is commonly used while taking investment decisions by many investors.
The pharma index outperformed the BSE S&P Sensex by 7% in the first quarter of 2013-14 in what some say is an early indication.
"Pharma stocks are expected to give good returns in the coming years with decent growth coming from both domestic as well as overseas markets," said Gautam Sinha Roy, vice-president, Motilal Oswal.
"Yes, it is an attractive sector to invest in. However, the strong run-up in stock prices might cap upsides," he added.
With India expected to be among the top 10 markets globally for pharma products by 2020, the sector is likely to grow by 18-20% per annum. Experts feel this will boost healthcare stocks.
"The pharma sector has posted good earnings growth momentum and is growing at an average 20% per annum, much higher than other sectors," says Sarabjit Kour Nangra, vice-president, research, pharma sector, Angel Broking.
Going forward, the growth momentum is likely to continue.
"I expect the pharma industry to post a growth rate of 18-20% per annum," says Alex Mathews, research head, Geojit BNP Paribas Financial Services.