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Pharma sector stocks have forever presented investors with many opportunities to make money. The Pharma sector is one of the few sectors to have delivered a Compounded Annual Growth Rate (CAGR) of 30% between 2009 and 2016. During the period mentioned above, the S&P BSE Healthcare Index, an indicator of the Pharma sector's performance, rose six times.
More recently, after COVID-19 hit the limelight, Pharma sector stocks rose in action. In fact, many Pharma sector shares have doubled in price and value since March 2020. Also, the S&P BSE Healthcare Index has jumped from 11,629 (on 27th March 2020) to 24,266 (on 17th March 2022) in less than two years, thereby more than doubling investors' money.
This article explains what Pharma stocks are, provides an estimate of the sector's future and presents a comprehensive Pharma sector share list containing the best Pharma companies in the Indian equity market.
What are Pharma Stocks?
Pharma sector stocks refer to publicly listed companies engaged in the production, research & development, manufacturing, distribution, and marketing of pharmaceutical goods. Incidentally, India is the 3rd largest producer of pharmaceutical products by volume and 14th largest producer by value. The country boasts of 3,000 drug companies with 10,500 manufacturing units.
The 11-year CAGR of Pharma sector stocks stands at a formidable 14%, even after witnessing many volatile events. The Pharma sector depends heavily on the USA FDA (Food and Drug Administration) regulatory framework, competition-driven pricing pressures, and drug approval delays.
However, Indian Pharma sector companies have traditionally maintained good standing and relations globally. The Indian Pharma sector has always been the leader of generic drugs globally. Drugs manufactured in the country are dispatched to various developed countries like the USA, UK, and other parts of the world. In addition, Indian drugs are more affordable than drugs produced in other countries and hence, these drugs help keep healthcare inflation under control.
What is the Future of Pharma Stocks?
Although the COVID-19 pandemic had a devastating effect on almost every sector, it was a boon in disguise for Pharma companies in India. A quick scan of the Pharma sector share list reveals that virtually all stocks in this sector are trading at double or more than their price at the onset of the pandemic.
Due to the pandemic, Pharma companies witnessed an increase in the demand for essential drugs. Some Over-The-Counter (OTC) vitamin and mineral drugs have become a staple for many Indian citizens. And Pharma companies are selling more than they would have the pandemic not arrived.
The Indian Pharma sector is poised for steady growth. Rising penetration of health insurance, coupled with innovation and evolving industry, will increase Pharma sector stocks' valuations manifold. In addition, the Union Government is also actively participating in the Pharma growth story. For instance, in June 2021, Finance Minister Smt. Nirmala Sitharaman announced an additional outlay of US$26,578.3 million or INR 197,000 crore for 13 key sectors under the pharmaceutical PLI scheme.
And according to the Indian Economic Survey 2021, the Indian Pharma sector's domestic market is slated to increase three times in the coming decade. It is expected that the Indian domestic Pharma market will grow from US$42 billion in 2021 to US$65 billion by 2024. Hence, now is the best time to invest in top Pharma sector stocks to grow your capital wisely.
Is It Worth Investing in Pharma Stocks?
Finding the best Pharma stock to invest in is not difficult since you already have the Pharma sector share list with you. The Indian medical devices market is expected to grow at a CAGR of 37% between 2020 and 2025. Also, according to CARE Ratings, the Indian pharmaceutical industry is expected to grow at an 11% annual rate to touch the US$60 billion mark. Hence, by investing in Pharma sector stocks, you will essentially invest in India's stellar growth story.
However, before investing in Pharma sector shares, you must keep an eye on global issues and pick companies with solid balance sheets, excellent management, low debt-to-equity ratio, good profit margins, patents, etc.