The Narendra Modi Government’s maiden budget last July did not hand out too many sops to the pharma industry, but that did not take the shine off pharma stocks, which have topped the gainers’ list since last Budget.

The BSE Healthcare Index has gained over 36 per cent in the last seven months, higher than the 15 per cent gains made by the Sensex in this period, thanks to the strong growth in revenues and profits for Indian drug-makers.

The aggregate revenue of 29 pharma companies in the CNX 500 Index grew over 15 per cent year-on-year in the first half of 2014-15. The aggregate net profit for these companies has more than doubled during the period.

Among the large cap pharma stocks, Lupin, Cipla and Cadila figured prominently in the gainers’ list. Strong earnings growth, backed by sound fundamentals, drove these stocks higher.

In the midcap space, the stocks of Shasun Pharma, Wockhardt Pharma, Ajanta Pharma and Strides Arcolab have more than doubled since last July. While Ajanta Pharma benefited from the company’s robust financial performance, the proposed merger with Strides Arcolab came as a shot in the arm for Shasun Pharma. While companies that have expanded benefited from the demand surge in the overseas markets and a weak rupee, the Indian subsidiaries of multinational drug-makers such as Pfizer, Sanofi and GlaxoSmithkline saw their profit decline in the April-September period due to price cuts in India. These stocks have underperformed the BSE Healthcare Index since July 2014.

With competition intensifying in the US generics space, Indian firms like Lupin, Dr Reddy’s, Cadila and Sun have shifted focus towards niche, complex generics. This has led to a sharp jump in the R&D costs for these companies. The industry is clamouring for higher tax sops on the research spend.

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