Pharma Sector to Get Well Soon

Nifty Pharma index outpaced benchmark indices in intraday trade on Friday buoyed by over 4 per cent gains from its frontliner , Sun Pharma. Where Nifty is almost flat, Nifty Pharma surges 2.8 per cent . Sun Pharma that holds more than 25 per cent weightage in the Pharma index, received US FDA nod for its generic cardiac drug. All other pharma companies within the sector were trading in green pulling the overall sector northwards.

The sector has been in a downtrend since April 2015, owing to higher competition, stricter regulatory norms, a compulsory decrease in prices and protectionist policies of the Trump administration. The US is the biggest export destination for Indian Pharma companies.

The Pharma index witnessed provisional bottom finishing in August 2017 and has attempted a reversal in these 3 months. After retracing up to 61.8 per cent of its prior rally from 8977 to 9760, the index bounced back with rising volumes with RSI and Stochastic positive crossover with a stochastic crossover in the oversold zone. Moreover, the index is approaching its 200 days EMA resistance level of 9798. In case the index breaches this level on a closing basis, we may see a good recovery in Pharma stocks in sessions to come. The 200 days EMA is not breached by the index since November 2016, i.e. the demonetisation period.

Investors who are holding pharma stocks in their portfolio and are in the losses can wait for some more period, for any positive news in the sector. One of the discounting factors could be a recovery in Q2FY18 earnings of the pharma companies or some boost from the regulatory authorities. Quick US FDA approvals are one of the primary reasons for the bottoming out in pharma stocks.