Date:15/12/2007 URL: http://www.thehindubusinessline.com/2007/12/15/stories/2007121551531500.htm

Back BSE-Healthcare outperforms other sectoral indices

Sharvari Patwa

Mumbai, Dec. 14 With the BSE-Healthcare index at its 52-week high on Friday, the worst seems to be over for pharma stocks. Amongst all the sectoral indices, BSE-Healthcare was the highest gainer on Friday, as it went up by 2.52 per cent, while most of the major indices ended in the red.

“With markets at their peaks, pharma stocks have joined the growth trajectory,” said Ms Anita Gandhi, Head-Institutional Business, Arihant Capital Markets Ltd.

Value buying

According to analysts, pharma stocks are being favoured as they have already been beaten down immensely and investors, who seem to be going for value buying in these stocks, have already factored in the worst-case scenario.

“This sector is highly under-owned in terms of asset allocation and has been underperforming for a long time, but the risk factor has definitely come down,” said Ms Sarabjit Kour Nangra, Analyst, Angel Broking Ltd. .

Another reason analysts point out is the out-of-court settlements, which seem to be happening in favour of some generic companies.

“Also with most products going off-patent by 2010, some generic companies such as Ranbaxy and Sun Pharma have a good going for them now,” said an analyst with a Mumbai-based brokerage firm.

According to analysts, most pharma stocks start doing well on the backdrop of some new developments such as acquisitions.

“Any new acquisition or deal will have positive impact on the profitability over a period of time,” said Ms Gandhi. It seems that private equity funds wanting to cash in on the budding players in the pharma fields have been hiking their stake in the sector, thus helping some companies fund their core R&D.

“Companies like Sun Pharma, Ranbaxy have been getting more funds for core R&D purposes, which boosts stock value,” said Mr Akshat Vyas, Analyst, Angel Broking Ltd

PE investments

Private equity firms such as ICICI Venture, Citi Venture Group and Sequoia Capital have invested in upcoming pharma units that are focussed on outsourcing.

Sequoia Capital invested Rs 100 crore in Hyderabad-based pharma and biotech research firm GVK Biosciences. It had also picked up stake in clinical research firm Sai Advantium for around Rs 50 crore earlier.

Two other clinical research firms Radiant Research and SIRO Clinpharm have also received PE fund investments from ICICI, 3i and Kotak, respectively, earlier this year.