Market Looks for Safety in Pharma Stocks

As investors look into defensive sectors in a market trading at high levels, pharmaceutical companies are back in trend. “We believe the current base reset lends itself to the creation of an environment conducive to bottom-up stock picking.” said Anmol Ganjoo, analyst, JM Financials.

Shares of several pharma companies, such as RPG Life Science, IPCA Lab, Dr. Reddy’s and Wockhardt, have gained 20% to 50% in the past month. Sun Pharma and Cipla are top bets in the sector.

Recently, several fund managers have started hoarding pharma stocks. Analysts have upgraded their ratings in several stocks, such as Divi’s Lab, Dr. Reddy’s Lab, Sun Pharma, Ajanta Pharma and Torrent Pharma in the past months.

From a stock price viewpoint, we now find Sun Pharma appealing, besides our defensive bet, Cipla, Also, Torrent Pharma, Alembic and Strides offer interesting entry points at current valuations.” said Ganjoo

The market has scaled to a new high without any strong earnings growth visibility. Under such circumstances, investors are looking at pharma stocks as a safe haven.” said Ajaj Bodke, CEO, Prabhudas Lilladher.

For the past couple of days, pharmaceutical companies like Sun Pharma, Dr. Reddy’s, Wockhardt Pharma, Aurobindo Pharma and Lupin have rallied due to a good amount of long formation.” said Sneha Seth, derivative analyst, Angel Broking. “Looking at the open-interest activity, we believe this space has further upside potential,” she added.

Large pharma companies have remained under pressure in the past three years due to regulatory suspicions, the burden of sustaining historical growth rates on large bases and a stronger rupee among other factors.

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