Can we invest in pharma stocks now or pharma mutual funds

Many have seen the rally in the pharma stocks from past one week

Firstly what has happended in the pharma stocks in the recent past

Pharma gaints like Sun pharma, Dr Reddys, Torrent pharma , Cipla, Biocon, Ipca labs, Abbott India rallied upto 50% from their 52 weeks lows in few days 

Return of 50% in these downtrend markets makes everyone's attention because many investors are still finding bottom to invest which no one can predict

But these companies are hitting 52 week highs in this bear market

What made them rally like that?

We all know, that the only issue running around the world is Covid-19. Where everyone is fearful, every business is shutdown in this scenario, there are some industries which are having benefit out of it i.e. Pharma sector

Global countries like US, Brazil and other european countries looking outside for solution to this virus and a trending news has come w.r.t this virus i.e. Hydrochloride (HCQ) which can be used for treating virus positive patients

Surprisingly Indian pharma companies are largest supplier of these medicines and have manufacturing capacities that can accomodate both domestic and international demand

So due to this many indian pharma stocks have rallied and hitting new highs

Is this rally sustainable and any upside potential left? 

Now i will discuss some facts w.r.t Pharma industry

Pharma sector has been under consolidation phase over 5 years. If you see the CNX pharma in 2015, where it has created a multi year high and from there its continously downtrend

Many headwinds for this industry, as USFDA aprovals are pending which are challenging for the pharma companies. Generally when USFDA issues warning letters to pharma companies, it takes almost 1-2 years for it to resolve 

What is it changing now in Pharma Industry?

The great investor Rakesh Jhunjhunwala once called pharma as "Sunrise sector" and one of his famous bet in pharma is Lupin 

Let us discuss some positives and tailwinds which are happening in pharma industry

In the above we discussed, the Pharma companies are facing USFDA approval are now being lifted and many are getting approvals which are pending from longtime due to current Covid-19 scenario

• CIPLA has god USFDA approval for First Generic Version of Proventil HFA inhaler
• Ajanta Pharma has got USFDA norms for cholestyramine powder
• Granules India gets USFDA nod for Butalbital, acetaminophen & caffeine capsules

And one more thing, India lifts the export ban for Hydroxychloroquine drug due to large demand and requests from US and many other countries

Technical Charts

When we see the whole CNX pharma index, as we have discussed its been long consolidation 

But whats happening now - Recent monthly breakout in CNX pharma is indicating a next bull run in this industry for upcoming years

Selection of Stocks 

So in this whole industry, which companies are going to be benefitted with this exiting opportunity and technical breakouts

Some Stocks which i have recommended before breakout in my Telegram Channel

Many stocks have rallied upto 50% and choosing whatever pharma stock would also have impact on your portfolio

My suggestion: If you are not experienced with markets and do not want to monitor the individual stocks and intended to hold till the next bull run, I would suggest you to go for Pharma Index Funds

So what is this, it is a mutual fund which is based on Index (Pharma)

Now a days, many are going for Index funds like Nifty bees and Bank nifty bees so that they have Right allcocation of portfolio and can track only One Index 

Since you are not well choosy of stocks, it is wise to do SIP or lumpsum investment in Pharma Index fund

But which fund is better now to invest in pharma sector

By screening few parameters i have selected - Nippon India Pharma 

Even this i have mentioned in my Free telegram channel - Telegram

when it was trading at 146 and now it is trading at whopping 164 NAV 

So do proper due diligence and start investing 

Do remember anything which comes so easy for you will not last long, so take the effort and pain of investing systematically

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Also do comment if you are holding any pharma company with the stock name, will surely reply with my view on that 

About the Author: 

CA Jagadeesh Atukuri

I am Chartered Accountant and CFA level 2 candidate. I am also a SEBI registered analyst. 

All my views are only educational purpose only and not to be considered as the investment recommendation