In last few days, we all have seen a good amount of volatility in our markets. It is common to see when Dollor currency has reached its all time highs. In other words, when Rupee will reach Rs 72/$ level and Brent crude will be stable above $75/barrel, how Nifty would be able to sustain at higher levels.
As of now, Crude prices have been much stable in the international market as compare to volatility in Currency. If the currency will continue to rise like this momentum, I don’t think Nifty would be able to sustain above 11500. It may also test levels of 11100–11300 in September if Currency see further fall in coming days. However, RBI which is the Apex Bank of India, has several methods which can be used to solve this issue. But it all depends on how RBI reads this currency depreciation and reacts to it.
Whereas Falling Rupee is considered as a negative thing for Indian Economy, there are few sectors which get benefits from this. As everybody knows, Exporting companies which earns most of their Income in Dollor currency form are the sole beneficiary. Therefore, IT and Pharma Sector are considered as the two major beneficiary from depreciating Rupee Currency.
IT Sector has already performed well during the first half of the year. Therefore, many experts and analysts now believes that in next half, Pharma Sector could be the next outperformer because this sector was under pressure from last few quarter. Therefore, it is possible for you to find many pharma stocks have already given 10–20 percent return in last few weeks. However, depreciating currency is not the sole reason behind this rally of pharma sector. There are many other reasons like
- SunPharma, which is considered as a leader of market, had posted a steller performance in its Quarter ended on June which boosted the confidence of every Investor. It was also a surprising thing for many Investors. The end result of the Sunpharma performce report was that Pharma Sector/stocks again started getting hopes from many investors/Institutional investors.
- Because Pharma Sector was consolidating within a range for a long time and had underperformed during 2017 and 2018 rally of markets, it also become a value buy for many after Depreciating currency.
- India is the largest provider of generic drugs globally. Indian pharmaceutical sector industry supplies over 50 per cent of global demand for various vaccines, 40 per cent of generic demand in the US and 25 per cent of all medicine in UK.
- The country’s pharmaceutical industry is expected to expand at a CAGR of 22.4 per cent over 2015–20. However due to higher competition in US, the CAGR of many Indian pharma companies had taken big hit. But with the gradually improving US Generic Pharma Industry, many experts believes that Indian Pharma Companies would again start reporting a better CAGR soon.
Probably after knowing these facts, you maybe thinking to buy atleast one pharma stock and give a space to it in your portfolio for long-term. But it is possible that this Momentum in Pharma Sector could also be for only Short-term because there are still few sectors which can attract a huge amount of investments in next few quarters.
As of now, I believe that metal stocks is the most attractive segment in market for any investment. Stocks like Tata Steel, Hindalco are available at a great price. Even, JSW Steel is also a good option as it has potential to perform more in Short-term. But as the issues are now getting resolved in the Pharma Sector and has better future as compare to many others, i think selective stocks from pharma stocks can also be a attractive option for next few quarters.
If we look at the technicals of Pharma Index, you will find that Index is also giving a clear breakout since it has broke the important resistance of 10,000.
It means that instead of only two or three stocks, whole sector is rising with a sharp momentum. Therefore for short-term, i think it can surely generate some good trade opportunities for traders. But for long-term like 1–2 years, it is still difficult to say that whole Pharma Sector will give you a great return or not?
Exactly, no one knows how much this momemtum in Pharma Sector would sustain in coming days except those who are behind this move. It could be a short-term move or a move for the whole year also.
Like in case of Axis Bank, ICICI Bank, where it was a expectation that change in management and Peakout of NPA issue may now help these two stocks to outperform the market. But it doesn’t happen. As of now, these two have again gone in the consolidation period. But again, we don’t know exactly how these banking stocks may react in short term. It all depends on how the institutional investors or any other big party read these stocks.
Therefore, instead of investing a great amount of money blindly in any pharma stock, i think it is better to give space to one or two pharma stock in your portfolio, if you wish to hold them. It is possible that Pharma Sector is heading towards a long rally? However, because we are the small retail shareholders, it should be our core job to remain little secured by diversified portfolios. This market is very unpredictable and may move in any direction. Whereas depreciating currency and higher oil prices have potential to pull down the market, increasing flow of money in Mutual Funds will still continue to support the market.
Therefore, I would suggest to buy only those stocks for long-term or even short-term (3-5 months) where valuations are attractive and have good potential or where you feel comfortable. Not buy stocks for long-term by looking at the current momentum.
Stocks Ideas from Pharma Space
There are few stocks which i personally like for long-term investment from Pharma sector. Glenmark, Lupin and Aurobindo Pharma are my suggestions.
Both Glenmark and Lupin can be accumulated at current levels or at lower levels for long-term. But in Aurobindo, the case is little different. After recent acquisition of the dermatology and oral solid Business from Sandoz Inc, for an upfront purchase price of $900 million (around Rs 6500 crore) in cash, stock has seen a solid buying in its shares. Within a two days, stock has already added more than Rs 6,000 crore in its total market capital. This sharp buying is common to see when the aquistion is done at an attractive price and stock is also trading at an attractive price!
After this buying, it is possible to see some correction in Aurobindo in coming days. But for long-term, the outlook is still bullish and I believe that this stock has even potential cross Rs 1000 in Short-term.
Stocks like Sunpharma, Cipla, Dr Reddy’s etc may also perform in long run or maybe in short run also. But for me, Aurobindo, Glenmark and Lupin are more favorite/comfortable choices.
For traders, there is a great amount of opportunities present in the Pharma Stocks. Traders can use the current momentum for weekly and monthly trades. Just for as an idea, traders can buy Lupin at current levels for the target of Rs 1050 with a stoploss at Rs 895.
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