Domestic pharmaceutical players heaved a sigh of relief in trade on April 3, while the other sectors see intense selling pressure, as the White House has excluded pharmaceuticals products from the reciprocal tariffs announced by U.S. President Donald Trump.
Trump unveiled his tariff plan for several U.S. trade partners on April 2, touted as ‘Liberation Day’, resulting in a “discounted” broad-based tariff of 26 percent on India. The is half of 52 percent that India supposedly charges U.S., including currency manipulation and trade barriers.
Experts had noted that India’s pharma exports to the U.S. were largely generic formulations, which would make drug access to American citizens more expensive. As a result, they had suggested it was unlikely for tariffs to be imposed on this sector.
In a note, international brokerage Jefferies had allayed concerns of India’s generic pharma makers, adding that the sector may escape any serious action by the Trump administration owing to fears of drug price hikes in America, though some players like Zydus and Dr Reddy’s are vulnerable due to higher US exposure.
In recent past, President Trump has signalled at potential tariffs on pharma imports as well, while calling for bringing overseas manufacturing back home. However, generic pharma may not see major tariffs, according to a Jefferies note, as they have been helpful in reducing US drug costs. The note added there is a possibility of a rally in the shares of US-focused generic pharma companies.
India’s pharma industry includes generic manufacturers, API vendors, CROs, and CDMOs. Jefferies said the generic formulation manufacturers and CMOs face the highest risk due to competition and pricing pressure. Zydus Lifesciences and Dr Reddy’s, with 45% and 43% of sales from the US respectively, are particularly vulnerable, the note said.
Most Indian pharma manufacturing remains in India due to lower labour costs. Setting up US facilities requires significant capital and time, making any large-scale shifts unfeasible. According to Jefferies, the current international generics pricing makes such projects unviable, though some Indian CRO/CDMOs do have US facilities for research, business development, and to offset supply chain risk.
However, all pharma imports to the U.S. are exempt from reciprocal tariffs, according to a White House factsheet. “Some goods will not be subject to the Reciprocal Tariff. These include copper, pharmaceuticals, semiconductors, and lumber articles,” said the document.
At 11.40 am, the Nifty Pharma index soared 2.7 percent, with IPCA Labs, Sun Pharma and Lupin emerging as the top gainers on the sectoral index, jumping up to 5 percent.
The Nifty Pharma index that had seen relentless selling pressure on exacerbated investor fears may see a bounce-back, noted Hong Kong-based brokerage CLSA. Over the past six months, the pharma index tumbled nearly 10 percent in trade as the markets entered a corrective phase.
