Instead of repeating the same commentary from last week, I thought I would rather provide you insights into a sector that’s been the talk of town recently - The Pharma Sector.
India’s pharma sector isn’t one sector but rather a bunch of smaller sub sectors within the larger umbrella of pharma and healthcare. There are hospitals, diagnostic companies, domestic facing companies, export oriented generic companies, branded generic companies, CDMOs and CROs, medical devices, disposable medical equipment manufacturers and so on.
In simple terms - its a large complicated sector.
Each of these sub sectors have their own characteristics and do not necessarily tend to move in tandem. For example, in 2022, large cap pharma companies like Sun Pharma, Lupin, Dr Reddy’s didn’t do much in terms of price action, but at the same time pure play hospital companies like Narayana Hrudayalaya, Apollo Hospitals, Fortis etc. delivered resilient returns in otherwise tough market.
Here are the charts for reference.
Nifty Pharma index which is largely made up of large cap pharma, made its all time high time this week.
The main reasons large cap pharma is talk of town these days and rightfully so for next couple of weeks is
In an otherwise expensive market, these are high free cash flow generating firms that are available for cheap/fair valuations. Dr. Reddy’s for example is close to all time low valuation multiples in its entire history!
These companies seems like a likely destination for increasing FII money entering the market, which is likely to mean revert the valuations to long term averages
There are several earnings triggers which should lead to high free cash flow and earnings growth
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