The Dream Run of Pharmaceutical Companies in 2020

Phrama sector is witnessing its dream run in the year 2020. The Nifty Pharma almost doubled from March 2020 lows. It increased 28 times which was 14 times in March 2020.

Pharma stocks have outperformed the entire 2020. All the stocks have almost doubled in value. The rally winners were Dr. Reddy’s Labs and Divi’s Labs in the Nifty 50 segment. It is expected that pharma stocks will have 10% growth for next upcoming years.

Indian Pharmaceutical Companies

Indian pharmaceutical companies have been underperforming for more than 15 years. The reason is very slow growth in the sector and U.S. FDA intervention. Hence Pharma stocks have been like a compressed spring since years which found an outflow in the lockdown period. 

For years the pharmaceutical companies are having the potential but people have not been looking at the opportunities. When lockdown hit India all the sectors were closed except Pharma and agriculture. The pharmaceutical sector which was compressed as a spring and it immediately attempted a high jump and went on doubling in values.

The NIFTY pharma had a capitalisation of almost 6 trillion Rupees which got cut short to 3 .5 trillion Rupees due to March lockdown news.

Today the index has added more than 85% of its lost wealth and is attaining new highs. Fund managers have started looking at this sector. They have started adding pharma stocks in their portfolios in bulk quantities.

Pandemic and Lockdown

Due to the pandemic and lockdown situation all the sectors were closed. This gave rise to demand for all the commodities used daily. Due to international restrictions the demand of critical and important medicines and related raw materials has risen. This gave rise to increased pricing in every medicine. 

Also the medicine shops were kept open for more time and their business was kept afloat and hence none of the medicinal shop owners or companies suffered any major loss due to the lockdown like other sectors.

Due to the obstacles in the supply chain the balance between demand and supply gets disrupted. Due to such supply chain obstacles in China all the countries started looking upon Indian Pharma companies. The U.S. government has allowed Indian medicines to have an inflow in their market by lifting the restrictions.

Nifty Pharma

As per the reports Indian and Foreign investors have increased their stake in Indian pharma companies by almost 220% and 130% respectively. If we closely look at the Nifty and Nifty Pharma valuations, Nifty Pharma enjoyed the premium position above Nifty 50 in December 2009 at last. After that for almost 11 years Nifty Pharma was undervalued and was trailing at a discounted position in comparison to Nifty 50. This year around in September we again witnessed the premium position and hence it can be said that Nifty Pharma is regaining its lost fame run. This can be termed as a major comeback by Nifty Pharma in the Indian stock market.

Pharma Stocks

Having a close look on the pharmaceutical industry, almost all the stocks have doubled their valuations and many of them have attained 52 week highs and are trailing above the same.

STOCKS	52 WEEK LOW	52 WEEK HIGH
DIVI’S LABORATORIES	1626	3859
DR. REDDY’S LABORATORIES	2495	5512.65
AUROBINDO PHARMA	288.85	967.5
CIPLA	355.30	829.05
CADILA	202	485
TORRENT PHARMA	1583	3031
ALKEM LABS	1881	3090
BIOCON	235.55	487.55
LUPIN	504	1122
SUN PHARMA	312	591

As we can see all the stocks have touched their 52 week highs in the past 2 months due to the big bull run. Almost all stocks have doubled in value from their 52 week lows. Also some small cap and mid cap stocks like aarti drugs have climbed almost 100% this year around due to lockdown benefits by pharma companies.

FDA and Indian Pharma Companies

US FDA has always been an obstruction in growth of Indian Pharma companies in the previous decade. At first the Companies of India enjoyed a good run due to patent expiration of foreign companies and generic drugs being priced high in the USA. But later on FDA started imposing strict supervision on the manufacturing facilities of Indian pharmaceutical companies. This led to a major outflow of warnings by FDA and also caused shutting down of manufacturing plants for a long time by many companies. In this time period many side effects from medicines also came forward and companies were forced to claim back their medicines from the market. 

However in 2020, Indian companies came out to be the market heroes due to supply chain disruption in China. This created great demand for medicines and India is one of the biggest manufacturers of the same. Also this created a situation for the USA where it had no choice but to open its gates to avail the generic medicine dosage by India. India is a major producer of vaccines and generic medicine in the entire world.

Vaccine and India

Serum Institute of India has the largest manufacturing facility for vaccines in the world. It can produce more than 2.5 billion doses in a year. It is the biggest hope by the world for speedy availability of vaccines. Also Dr. Reddy, Zydus and Cadila and Biocon have been in the race of producing vaccines. 

India is among the top players in medicinal fields today and has the capacity to produce vaccines for the entire world. All that needs tp be done is trusting the sector and just being patient for its multifold returns in long run.