FDI to decide the fate of Pharma Industry

In a big relief to the Pharma sector that has been making lower tops and lower bottoms since October 2015, Government is mulling over a proposal to relax foreign direct investment (FDI) norms in existing pharma companies to attract foreign inflows. The sector (CNX Nifty Pharma index) has already seen a loss of more than 20 per cent since October 2015. 

In discussions with the DIPP (Department of Industrial Policy and Promotion), Finance Ministry has proposed FDI up to 49 per cent through automatic route and beyond the said limit would require approval of FIPB (Foreign Investment Promotion Board).  DIPP’s biggest concern lies in the mergers and acquisitions of domestic companies by foreign giants.

For now, FDI up to 100 per cent is permitted in new brownfield pharma projects but for existing companies the forex is derived only through FIPB mode. 

Earlier the Parliamentary Standing Committee on Commerce had suggested setting up a group to study the impact of FDI on both brownfield and operational firms and suggest a blanket ban on any FDI in brownfield.

The study would refer to the impact of FDI; and access to affordable medicines provided India has a strong generic medicine industry. India already stands as the major generic medicine hub where the industry size remains over 20 Billion USD.

In the month of May, the government approved 3 pharma FDI proposals amounting to Rs 60.73 crores, wherein the Advanced Enzyme Technologies was at the forefront. Other two were Wockhardt and Aurobindo Pharma.

Lupin, PEL and Cipla have surged 1.6, 1.3 and 1.2 per cent respectively. Many pharma stocks have rebounded from the support levels for recovery.