Mumbai: Investors are likely to shed pharmaceutical stocks from their portfolios after brokerages advised bets on cyclical stocks such as industrials instead of defensives after the ruling coalition got a clear election win.
Morgan Stanley and CLSA reduced their weightage on pharma stocks, while raising their outlook on financials, industrials and consumer discretionary sectors such as auto.
“The growth sectors will be back in fancy as now the government will be looking at spending a lot of money on infrastructure and things like that, said Sarabjit Kour Nangra, vice president research, pharmaceuticals, Angel Broking.
Assets will be allocated to high-growth infrastructure sector and for domestic-oriented sectors, she added.
The pharmaceutical sector has traditionally been considered a ‘defensive´ sector, with investors taking cover under these stocks when the economy is in turmoil.
In 2008, the BSE Healthcare index was the second-best performing index, falling 33%, outclassing the benchmark index’s 52.5% slide.
At 11:50am, the healthcare index was down 2.2% at 3,341.24 points, while the benchmark was up 2%.
The left-of-centre Congress coalition won a second term after a clear victory over the weekend, bolstering hopes for stability and fast-paced reforms in sectors such as banking, insurance and real estate.
“Pharma is going to be a neutral sector. There is nothing much to look forward to, nothing expected (in terms of sops),” said A. Balasubramaniam, chief investment officer at Birla Sun Life Asset Management.
“The focus is going to be on interest-rate sensitive sectors like engineering, capital goods, banking and financial services. With changes in FDI (foreign direct investment) rules expected, telecom and media may perform better too,” he added.
However, the run-up in the non-pharma sectors is unlikely to last long, said Bino Pathiparampil, vice president at IIFL Capital. As the initial euphoria over the election results settles, pharma may be back in focus, he added.
Most Indian drug firms are significant exporters and the rupee’s 3.2% climb, its biggest one-day gain in over a decade, to close at 47.9% the dollar on Monday, and expectations of a further rise is seen hurting earnings.
“If the rupee keeps appreciating like this, it will be bad for the industry in terms of revenue,” said Bino Pathiparampil.
However, a stronger rupee is seen benefitting companies with forex hedges such as Ranbaxy Laboratories Ltd and Jubilant Organosys, analysts said.