Buy or sell: Nifty pharma index breaches short term hurdle. Should you buy pharma stocks now?
3 min read 10 Sep 2022, 10:37 AM ISTBuy or sell: Nifty Pharma index has recently breached its shorter term 20 DMA hurdle on closing basis, say experts
PremiumStocks to buy or sell: Out of 20 pharma stocks listed in Nifty Pharma index, only two stocks — Sun Pharma and Cipla — have delivered return to its shareholders in last one year. Rest 18 stocks have given zero return to its positional investors in this period. These 18 Nifty Pharma stocks, Strides Pharma share price has crashed maximum 45 per cent in last one year whereas Gland Pharma, Natco Pharma, Lupin and Zydus Lifescience is following it with an yearly loss in stock price by 38 per cent, 37 per cent, 33 per cent and 32 per cent respectively. Divi's Lab share price has also tanked over 30 per cent in last one year. However, in recent sessions, Nifty Pharma index has recently breached its shorter term 20 DMA hurdle on closing basis fueling the speculation about upcoming rally in pharma stocks.
Full list of Nifty Pharma index
Expecting recovery in the pharma sector, Sonam Srivastava, Founder at Wright Research said, "The profitability of Indian pharmaceutical companies have been severely impacted by high freight costs and pricing pressures. The Pharma sector's decline was also seen in the most recent June-quarter results. We anticipate a recovery in the sector in the coming quarters. This shall be in line with the analyst expectations of the Indian Pharma Market to grow around 10-12% in FY23."
Speaking on chart pattern in regard to Nifty Pharma index, Ruchit Jain, Lead Research at 5paisa.com said, "The Nifty Pharma Index corrected gradually with the markets from October 2021 highs. However, in last couple of months the Nifty has seen a sharp pullback move but the Pharma index hasn’t seen much price wise upside move and has relatively underperformed. The index has resisted around its ‘200 DEMA’ recently is still trading below that crucial hurdle. But there are some initial signs of buying interest as the index has ended above its short term hurdle of 20 DEMA and the momentum readings on the daily chart have given a positive crossover. Also, the recent price structure indicates that the index is forming an ‘Inverted Head and Shoulders’ pattern which is a bullish pattern and is currently in process of forming the right shoulder."
See Nifty Pharma chart pattern below:
The 5paisa.com analyst went on to add that the pattern will be completed if the index rallies towards 13,000 to 13,100 levels and gives a breakout beyond the same.
"So looking at the above structure, we anticipate probability of a revival in some of the Pharma names in the near term and hence, positions traders should start allocating some of the capital towards the Pharma names and add aggressively if the Nifty Pharma surpasses its hurdle of 13000-13100 in the near future. Above this resistance, the probable targets for the index will be seen around 14000, while 12300 will now be seen as a sacrosanct support," Jain said.
Buy or sell: Pharma stocks in bull trend
On Nifty pharma stocks to buy today, Ruchit Jain of 5paisa.com said, "Cipla share price has recently formed a support base around the ₹900 mark and since then has been forming a ‘Higher Top Higher Bottom’ structure. Prices are trading in a ‘Rising Channel’ which signals an uptrend in the stock. Also, the ‘RSI Smoothed’ oscillator has given a positive crossover after a cooling-off from the overbought zone. The technical chart structure is thus bullish, and is indicating a continuation of the uptrend. Hence, traders can look to accumulate the stock around current market price of ₹1,050 and look to add on declines towards ₹1,025 for potential target around ₹1,160. The stop loss for long positions should be placed below the swing low of ₹990."
See Cipla share price chart below:
On stocks to buy from the pharma segment, Sonam Srivastava of Wright Research said, "This is indeed an advisable time to reset exposure to Pharma stocks. Blue chip stocks like Lupin, Glenmark, Sun Pharma, Dr. Reddy's are expected to lead the upcoming rally. However, investors need to be cautious as SEBI has recently asked Pharma companies to disclose details and this has the potential to impact stock prices."
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.
