Pharma stocks flavour of season, experts wary

  • Mirza Mohammed Ali Khan, Hindustan Times, Mumbai
  • Updated: Mar 15, 2015 23:04 IST

The pharmaceutical sector in Indian equity markets has been in focus lately as acquisitions and a number of developments such as approvals have given impetus to stocks of pharma companies.

BSE Sensex scrip Cipla, which was at the centre of speculation about possibly acquiring Pune-based world’s largest vaccine manufacturer Serum Institute, has seen an increase of 11.46% over the past three months.

Sun Pharma, which acquired pharma major Ranbaxy, saw an increase of almost 20% in its stock price over the same period.

The BSE’s health care sector index, which is mostly comprised of stocks of pharmaceutical companies, has seen a jump of 13.1% in the past three months, and a gain of almost 1,000 points over the past one month alone.

Stocks of Hyderabad-based Natco Pharma saw heavy buying on the back of the company’s approval from the Drugs Controller General (India) to sell generic Sofosbuvir tablet, used to treat Hepatitis C, in India. Natco Pharma’s stocks have leapt 54.2% in the BSE over the last three months.

Stocks of Ajanta Pharma also surged last week at the BSE after the company announced it had fixed March 23 as the record date for its stock split.

Over the past three months, Ajanta Pharma’s stocks have rallied almost 18%.

However, analysts warn of taking the companies’ valuation into consideration. “Some of the companies’ valuations are not justified,” Surajit Pal, research analyst- pharmaceuticals, Prabhudas Lilladher, told HT. “In some cases, companies might have discounted valuations four-five years forward.”

Pal was also of the opinion that the surge in pharma was not a generic trend. “In pharma, the valuation is more company-specific,” he said.

This view was echoed by Harsha Upadhyaya, chief investment officer- equity, Kotak Mahindra Asset Management. “We are currently underweight on pharma. The issue has been with the valuations, which are on the higher side,” he said.

“We will wait for valuations to moderate before we look into the pharma sector,” he added.

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