Pharma Stocks
Introduction to Pharma Stocks
Pharmaceutical companies manufacture drugs that are used in medicines to cure illness ranging from cancer to a common cold.
India has some of the world's largest pharmaceutical companies who have a strong reputation for mass producing generic drugs.
Investors are paying added attention to this particular sector ever since the onset of the COVID-19 pandemic in 2020. Investing in pharma stocks can be an attractive option for investors looking to capitalize on the future growth potential of the sector.
Key Features of pharma sector in India
Growth stocks
Pharmaceutical stocks have the potential to grow at a significant pace due to factors such as an aging population, rising incomes, and increasing healthcare awareness. This growth potential makes pharma stocks in India an attractive investment option.
Research and Development (R&D)
R&D form the basis of pharmaceutical firms as formulations of new drugs to treat different medicines is its main business.
Strict regulations
The pharmaceutical sector is heavily regulated by the US FDA. Many companies produce drugs in India and supply it to the US, which is a key market.
Low-cost production
Pharma stocks functioning in India are known to produce medicines at a lower cost and increase profitability.
How to evaluate Pharma stocks?
Understand its product pipeline
Which shows which new products it expects to launch in the near term. The share value of pharmaceutical companies are directly related to the drug it manufactures or the medicinal products it launches and its real world implications. For instance if a pharma company releases a medicine which is proved to cure an ailment which was incurable before, you can expect a large jump in its share price.
Intellectual rights
IP rights form the strong basis of a pharma stock as it allows the company to earn if any drugmaker uses its formula. Companies like Sun Pharma, Cipla have intellectual property rights on several of the drugs in the market. This means if any other company wants to use a specific drug made by these companies, they have to pay them a certain fee.
Regulation
Pharma companies are strictly regulated entities. In India, The Central Drugs Standard Control Organisation is the regulatory body which oversees the overall business process of these pharma companies. Further, Indian pharma stocks exporting to US markets also have to comply with the norms stated by the US Food and Drug Administration.
Details of top pharma stocks
Sun Pharma, Cipla, Divis Laboratories, Dr Reddy’s, Torrent Pharma are a few examples of the top pharma stocks listed with Indian exchanges.
Sun Pharma
Sun Pharma is among India’s largest pharmaceutical companies with a recorded net profit of above Rs 2,000 crore in 2022. The company has a global presence and derives most of its business from selling specialty and generic drugs in the United States.
Divis Laboratories
Divis Laboratories is an Indian pharmaceutical company which focuses on the manufacturing of active pharmaceutical ingredients (API). APIs means the active drug component from which a particular medicine derives its therapeutic effect and is one of the key factors that influence the shares of pharma companies. Divis Laboratories was listed in 2003 at a price of Rs 9 per share and has risen to Rs 3250 in 2023, a 36,000% increase.
Cipla
Cipla is one of the oldest pharmaceutical companies based out of India. The company was listed in 1935 and is a market leader in manufacturing medicines related to respiratory disease, cardiovascular disease, arthritis and diabetes among others. Cipla was listed in 1999 at Rs 23.5 per share and currently trades at Rs 925 per share. Pharma is considered as a defensive sector which means they generally perform well irrespective of how the economy performs.
Who should invest in pharma stocks?
The sector is considered to be among the safest stocks to invest in, Pharma stocks can be a great investment choice for people wanting to hedge their riskier investments. Pharma stocks are considered defensive stocks as they will perform considerably better even if the economy is falling as demand for pharmaceutical products always remains.