Rs 50,000 crore support boosts pharma counters, index up 4%

Sun Pharma, Lupin, Cadila Healthcare, Aurobindo and Torrent Pharma among others rallied more than 5 per cent.

Mumbai: Shares of drug makers and healthcare companies were among the top performers on Wednesday boosted by the Reserve Bank of India’s move to provide an on-tap liquidity window of Rs 50,000 crore for the sector to fight Covid-19. Analysts said the announcement could push investors to raise their stakes in defensive sectors like pharma and technology as the second wave of the pandemic has reduced their appetite for cyclicals.

The Nifty Pharma index rallied 4 per cent on Wednesday as against the 1 per cent gains in the Nifty. Sun Pharma, Lupin, Cadila Healthcare, Aurobindo and Torrent Pharma among others rallied more than 5 per cent.

“The liquidity facility of Rs 50,000 crore to help healthcare infra and release of guidelines on import of Covid-related vaccines and medicines are sentiment boosters for the pharma sector,” said Gaurav Dua, head of capital market strategy, Sharekhan. “Some of the undervalued stocks that are focused on R&D can be bought for a decent return.”

Crisil said the lower cost of funding for the industry will result in the return on capital employed (ROCE) of healthcare companies climbing up from the existing 12.5 per cent.

“Diagnostic chains can take up this opportunity to penetrate in tier-II and beyond cities,” said Rahul Prithiani, Director, Crisil Research. “As the lending to this sector is now included under priority sector classification, it will provide additional impetus for lending to the sector.”

Several pharmaceuticals and healthcare stocks including Shilpa Medicare, Aarti Drugs, Granules, Narayana Hrudayalaya, Astrazeneca Pharma, Biocon, Aster DM, Glaxosmithkline Pharma and Abbott India among others are trading 20-40 per cent below their 52-week highs.

According to Bloomberg consensus estimates, stocks such as Granules, Narayan Hrudayalaya, Aster DM, Jubilant Pharmova could rally over 30 per cent in the next 12 months, while Shilpa Medicare, Aarti Drugs, GSK Pharma, Abbott India, Torrent Pharma and Alembic Pharma are expected gain between 10 per cent and 20 per cent.

Technical analysts said the Nifty Pharma index has seen a breakout and could touch 14,800 in the near future. The index closed at 13,779.70 on Wednesday.

“The Nifty Pharma index has seen its ups and downs since the last couple of years however now has given a breakout of its six years long overhead resistance which is placed at the level of 13470,” said Sandeep Porwal, technical analyst, Ashika Stock Broking. “RSI a momentum indicator too indicates further strength is likely in the uncharted territory to 14,800 levels.”

Viral resurgence in India has led to spike in demand for Covid-related drugs like Remdesivir manufactured by Cipla, Cadila and Dr Reddy’s Laboratories among others, which are used for moderate to severe cases, and Favipiravir manufactured by Glenmark, Cipla, Dr Reddy’s for mild cases.

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