Pharma and chemicals stocks took the driver’s seat in the domestic equity market’s rebound from the Covid-19 disruption.
Data shows some 42 stocks from these sectors have more than doubled investors’ money since the beginning of this calendar year.
Chart topper Venus Remedies has rallied the most at 546 per cent, followed by Aarti Drugs (up 382 per cent), Mangalam Drugs (375 per cent), IOL Chemicals (up 352 per cent) and Bharat Immunological & Biologicals (up 328 per cent).
Investors’ affection for these sectors is still visible in the market, which has since lost the momentum to a great extent. And the enthusiasm has had a rub-off even on the primary market, where the initial public offering of Chemcon Speciality Chemicals got subscribed over five times on the first day of issue on September 21.
Several top portfolio managers on Dalal Street, such as Marathon Trends and Valcreate Investment Managers, have top pharmaceutical stocks among their top holdings.
Analysts says a couple of factors are going in favour of these sectors, and the trend may continue.
“The pharmaceuticals and chemicals spaces will continue to show decent growth in earnings in next three to four years. We see big opportunities for companies engaged in contract manufacturing and outsourcing. Speciality chemicals will also benefit from the rising cost in China. In India, the cost mechanism also will ensure margins remain under control. We will continue to see stable growth in terms of businesses and these tailwinds will continue,” said Rajesh Pherwani, Founder and Portfolio Manager, Valcreate Investment Managers.
Pherwani’s Life Sciences and Specialty Opportunities PMS strategy, which together have around 70 per cent exposure in chemicals and pharmaceuticals spaces, has delivered 30 per cent returns each to investors in last six months and 55 per cent in last one year.
In the chemicals space, Alkyl Amines Chemicals, Vasundhara Rasayans, Deepak Nitrite, Alufluoride and Shree Hari Chemicals Export have been the top performers, rallying between 100 per cent and 270 per cent since January 1.
Nilesh Ghuge and Harshad Katkar, Institutional Research Analysts at HDFC Securities, are positive on the speciality chemical sector. “Domestic availability of raw materials, accelerated capex to build product development capabilities, investment in R&D and backward integration resulting in Ebitda and PAT growth at 19 per cent and 23 per cent CAGR over FY21-23E,” HDFC Securities’ analysts said in a report.
They also believe companies supplying speciality chemicals to pharmaceutical and agrochemical industries are in a sweet spot due to a steady growth and stringent regulations that create entry barriers for competitors.
HDFC Securities has ‘buy’ ratings on Alkyl Amines, Balaji Amines, SRF, Aarti Industries and Galaxy Surfactants and an ‘add’ recommendation on Navin Fluorine.
On the other hand, Laurus Labs, Lasa Supergenerics, Anuh Pharma, Granules India, Shilpa Medicare and Bajaj Healthcare are among the pharma stocks that have jumped between 100 per cent and 300 per cent on a year-to-date basis.
“Lots of things are changing in the pharma space due to the pandemic. There is going to be incremental demand for multiple pharmaceutical products. Regulators are also speeding up the approval process. The regulatory hurdle was one of the biggest challenges for Indian pharma earlier and that to an extent is getting eased up because of the onset of the pandemic,” said Sudip Bandyopadhyay, Group Chairman, Inditrade Capital.
He recommended investors to build a portfolio of three to four pharma stocks at the least.
“There is inherent volatility based on regulatory approvals and a whole lot of other market factors. Therefore, investors should buy a basket of pharma stocks and plan to hold it for a year. It will make a lot of money,” he said.
Credit: Stocks-Markets-Economic Times