Sun Pharma, Cipla, Divi's Labs Shares Rally, Pushing Nifty Pharma By Over 2 Per Cent - Know Why

Nifty Pharma News: Shares of major domestic pharmaceutical companies such as Sun Pharmaceutical, Cipla and Divi's Laboratories surged on May 13, gaining up to 3.69 per cent to hit their respective intraday highs. Nifty Pharma index witnessed strong buying interest, surging over 2 per cent to a intraday high of 21,589.1. Notably the Nifty Pharma index extended gains for the second straight day as it closed at 21,359.75 up by 1.22 per cent.

Notably the rally seen in the Nifty Pharma index comes amid broad-based selling in the overall market which has caused the headline indices to pare the gains made on May 12. As the Nifty Pharma surged, the benchmark Nifty 50 index slumped over 1 per cent to an intraday low of 24,576.

Nifty Pharma Top Gainers

Granules India Ltd, Ajanta Pharma Ltd and IPCA Laboratories Ltd gained the most among Nifty Pharma constituents as they closed higher by up to 4.14 per cent. Top constituents of the index in terms of weightage, Sun Pharmaceutical, Cipla and Divi's Laboratories closed higher by up to 2.34 per cent at the time of writing.

Other major gainers included Glenmark Pharmaceuticals Ltd, Aurobindo Pharma and Zydus Lifesciences closed higher by up to 2.63 per cent on the NSE. Notably, 18 constituents of the Nifty Pharma index traded in the green and two constituents traded in the red.

Why Are Pharma Stocks Gaining

On May 12, US President Donald Trump signed an executive order ordering drugmakers to sell in the US market to reduce medicine prices and bring them to the same level as other countries, such as Canada and the United Kingdom.

Trump gave drugmakers a period of 30 days to do so and added that further action would be taken if the companies did not show "significant progress" toward achieving those goals. Despite the order, the domestic pharmaceutical industry has remained unfazed as the Nifty Pharma index has extended gains in today's session after closing in the green on May 12.

While the US is the key market for the domestic pharma sector, according to data from the India Brand Equity Foundation (IBEF), India also exports pharmaceutical goods to over 200 countries, including other regulated markets like the West Europe, Japan, and Australia. The current executive order is not likely to hit generic medicine manufacturers such as Dr Reddy's, Lupin, and Aurobindo Pharma as the pricing pressure caused by the order might affect major pharma companies which sell name-brand drugs more.

Ajit Mishra, SVP of research at Religare Broking Ltd told Outlook Money that Indian generic drugmakers will not be impacted significantly by Trump's executive order as the policy is aimed at targeting high-cost innovative drugs.

"Trump administration’s move to slash U.S. drug prices is unlikely to significantly impact Indian generic drugmakers directly, as the policy primarily targets high-cost, innovative drugs, while generics—largely supplied by Indian firms—are already priced low in the U.S. market. For now, Indian pharma companies’ strong foothold in the U.S. generics space remains largely insulated from major disruption due to this policy," Mishra said.

Notably, generic drugs from India comprise 20 per cent of the global export in terms of volume, making India the largest provider of generic medicines globally.

Other factors which have contributed to the rally seen in pharma stocks include the upcoming announcement of financial results for the March quarter and full fiscal FY 2024-25 of Sun Pharmaceuticals and Cipla (Cipla Q4 Results) on May 13 and Divi's Laboratories on May 17.

Additionally, investors are likely to have turned towards pharmaceutical stocks as the sector is traditionally viewed as a relatively safe sector amid uncertainty caused by rising geopolitical tensions between India and Pakistan.

"Pharma stocks are traditionally viewed as defensive due to their consistent demand across economic cycles. The sector’s resilience stems from strong domestic and global demand, especially for chronic illness treatments, government support through the PLI scheme promoting local manufacturing, and sustained R&D investments driving innovation in complex and specialty drugs. With these robust fundamentals and strong recent performance, pharma stocks have become an attractive choice for investors seeking stability amid market volatility and global uncertainties," Mishra said.

Notably, the surge seen in the Nifty Pharma index amid broad-based selling follows the biggest single-day gain made by the headline indices in four years on May 12, indicating that investors are likely to have booked profits elsewhere and expressed buying interest in the pharma sector.