After nearly two years of sustained correction in pharmaceutical stocks, valuations across the sector have eased to more reasonable levels, prompting Elara Securities to adopt a constructive stance on select names within the space.
Elara’s Preferred Pharma Picks
Elara Securities has identified Zydus Life Sciences, Sun Pharma, Aurobindo Pharma, Gland Pharma, and Ajanta Pharma as its preferred picks. The brokerage sees favorable risk-reward potential in these companies, supported by strong export exposure and improving earnings visibility.According to Bino Pathiparampil, Head of Research at Elara Securities, Indian pharmaceutical companies are largely net exporters, especially larger players that derive a significant portion of revenue from overseas markets. With the rupee sharply depreciating not only against the US dollar but also against several emerging market currencies, export-oriented drugmakers are positioned to benefit from improved margins and enhanced profitability.
The weaker rupee environment is expected to act as a tailwind for earnings, particularly for companies with diversified international revenue streams.
Diagnostics Sector Valuations Also Correct
Beyond pharmaceuticals, the diagnostics segment has also seen a meaningful correction in valuations after a period of strong growth. Pathiparampil believes the space is turning attractive again at current levels.Among larger diagnostic players, he prefers Dr Lal PathLabs, citing its leadership position and consistent operational performance.
Hospitals in Transition Phase
In contrast, the hospital sector is currently undergoing a transition. Following several years of robust growth driven by increased healthcare demand and higher insurance penetration after the pandemic, market expectations had moved ahead of fundamentals.Although stock prices in the hospital segment have corrected and valuations are gradually easing, Elara believes investors should wait for clearer signs of earnings stability over the next few quarters before adopting a more optimistic view.
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