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Shares of companies in defensive sectors, primarily export-oriented ones such as information technology (IT) and pharmaceuticals, have outperformed the benchmark indices for the fourth consecutive month, as investors don’t expect the Reserve Bank of India (RBI) to cut rates in a hurry.
In September, the pharma and IT indices on the National Stock Exchange gained six per cent and eight per cent, respectively, against the Nifty’s 0.2 per cent fall. Between June and September, the pharma and IT indices, which are at their respective lifetime highs, have rallied 41 per cent and 26 per cent, respectively, against the Nifty’s 10.2 per cent rise.
At its fourth bi-monthly monetary policy review on Tuesday, RBI kept the repo rate and the cash reserve ratio and statutory liquidity ratio requirements unchanged, citing upside risks to the inflation target of six per cent by January 2016.
“We believe though there are upside risks, as mentioned by RBI, the recent softening of commodity and crude oil prices, along with a stable currency and fiscal measures by the government, will ensure inflation continues to fall to 6-6.5 per cent by March 2016,” said Arvind Sethi, managing director and chief executive, Tata Asset Management.
Rupee booster
Meanwhile, weakness in the rupee could boost sales of pharma and IT companies (in rupee terms), as these sectors derive substantial revenue from exports, analysts say. The rupee gained 2.05 per cent against the dollar in September and 4.5 per cent in the past four months.
Among individual stocks, Cipla, Lupin, Ranbaxy Laboratories, Sun Pharma, Lupin and Dr Reddy’s Laboratories rallied about 30 per cent between June and September. Tata Consultancy Services, Infosys and Tech Mahindra gained 27-30 per cent each.
Analysts at Icra believe Indian pharma companies will continue to see strong growth in the US through the medium-term. This will be driven by a) sizable opportunity in generics (drugs with brand value of $25-30 billion are expected to face competition from generics) through the next two-three years and by a strong product pipeline of pending Abbreviated New Drug Applications.
“Given the increasing challenges, we believe companies with growing portfolios comprising niche or complex products and high levels of backward integration are likely to be better positioned to withstand some of the pressures,” the analysts said in a recent report.
