Pharma weight in BSE to touch 5-year low

Cipla, Lupin to be replaced by IndusInd Bank, YES Bank

With drug makers Lupin and Cipla set to be replaced in the S&P BSE Sensex by IndusInd Bank and YES Bank, the weight of the pharmaceutical industry in the index would decline to a five-year low. 

The index, jointly owned by the BSE and the US-based S&P, is a free float, market-weighted stock index of 30 companies. 

“All over the world indices ride on successful stocks as these are made of weights by market capitalisation,” said G Chokkalingam, founder and managing director, Equinomics Research & Advisory.

On Friday, four drug makers together had a 4 per cent weight in the Sensex with Cipla and Lupin, respectively, weighing in at 0.9 per cent and 0.6 per cent. 

The other two drug makers, Sun Pharma and Dr Reddy’s Laboratories, respectively, had weights of 1.7 per cent and 0.8 per cent. 

The BSE and S&P said on Friday that the Cipla and Lupin scrips would be replaced in the Sensex by December 18.

This would bring down the pharmaceutical industry’s weight in the Sensex to 2.5 per cent, assuming that the rest of the Sensex stocks remain in the index. 

With this, the Sensex would be represented by only two drug companies, a number last seen in 2011-12, when the industry’s weight in the index was 2.7 per cent.  

“Pharmaceutical stocks going out of the Sensex is an indication that these companies are losing investors’ interest. But that is not the end of the wealth creation story as there are many companies that make a comeback in indices once they begin performing again,” said  Chokkalingam. 

Asian Paints has made a comeback after being dropped from the Sensex.

Pharmaceutical stocks have lost their sheen as the US earnings of drug makers languish following heightened scrutiny by the Food and Drug Administration.

From a low of 2.7 per cent in March 2012, the weight of pharmaceutical stocks on the Sensex rose to 8.1 per cent in March 2016 before declining to 6.2 per cent in March 2017 and to 4 per cent on Friday. 

“FIIs have been on the selling side in pharmaceutical stocks since mid-2015 and are currently underweight,” said Dhananjay Sinha, head of research at domestic brokerage Emkay Global. “The exclusion of names can induce more pressure,” he added. 

On Monday, Cipla closed 1 per cent lower at Rs 602 a share on the BSE and Lupin was down by 0.4 per cent to Rs 826 a share.