When the pandemic shuddered the stock market indices in March 2020, the pharmaceutical & hospital sectors not only alleviated the fall for investors but ended up delivering bankable returns. But this year, the story has changed. The pharma sector has been underperforming since June 2021. As a matter of concern, the last year’s chart toppers have delivered 21% as a sector, which is among the lowest in contrast to other thematic and sectoral peers. Leading losses, the Nifty Pharma Index tumbled 1.3% to touch its lowest level in nearly three weeks after large caps fell around 3%.
The Union Budget of 2021, which was drafted amid a global health catastrophe, was sketched with focus in healthcare, and the sector was allotted a generous chunk of the entire budgetary allocation. It was one of the few sectors allowed to operate, in the worldwide healthcare quandary, which led to positive investor sentiments, but that story has played out, surging up the valuations. It seems pretty clear that investors demand clear evidence of progress in return for their support right now.A hair-splitting and censorious analysis of the Budget would make the fact perspicuous that the increase in allocation, dowelled at 137% by the Ministry of Finance, was attributed to expenditure set aside for Covid-19 vaccination and the finance commission grants for water, sanitation and health, and overall allocation to drinking water and sanitation. The Budget’s nucleus laid emphasis mostly on the country’s vaccination drive. Therefore, not many mainstream and small cap pharma stocks are bound to benefit from the announcements.
A few Indian pharma companies are already working in the specialty products business in the US, which is a very high-value market as against the traditional generic business. Though COVID-19 has raised awareness on the importance of healthcare, which fund managers say can bring rational changes like more alacrity to visit doctors, but the much larger mid and small-cap groups, being most heavily punished, are dragging Nifty indices.
A strong performance from a handful of large caps could not rescue the sector from a weak three months on the stock market. While fund managers and analysts don’t expect any bad news, they feel a prompt recovery is unlikely for the sector.
