The entire world has been under tremendous stress due to the COVID-19 pandemic. The coronavirus outbreak has not only caused severe damage to the health of the people, but also to their welfare. The year 2020 has also not been too kind, to say the least, to the financial markets and the world economy.
Owing to this crisis, the Indian stock markets witnessed one of the greatest crashes ever since their inception. The benchmark indices SENSEX and NIFTY fell sharply by around 20% since the beginning of March, 2020. Almost all the sectors and industries were seen trading in red. Even large-cap and blue-chip companies were not spared from this bloodbath. Despite such an unprecedented drop in the share prices across the board, there is one sector that has been showing a glimmer of hope: the pharmaceutical industry. Read on to find out more about the impact of coronavirus on pharma stocks.
Overview of the financial markets in the time of COVID-19
As the number of COVID-19 cases continue to rise throughout the country and the world, investors, both retail and institutional, are fervently pulling their money out of cyclical stocks. This level of panic selling has not only triggered a freefall in the stock prices, but has also shot the market volatility through the roof.
The 21-day lockdown enforced in India has also added to the burden, since all non-essential services were banned and manufacturing across all sectors have effectively ceased. With no vaccine in sight till now, the bearish grip on the stock markets have only grown stronger.
Impact of coronavirus on pharma stocks
On the other hand, investors have now come to realize the potential of pharmaceutical stocks amidst the ongoing crisis. They appear to literally be on a shopping spree, with almost all the pharma companies, barring a few, closing in green every single trading day. As of April 16, 2020, both the major indices tracking pharmaceutical stocks – S&P BSE Healthcare and Nifty Pharma – grew by about 36% and 42% respectively since March 23, 2020. This major leap in demand for pharmaceutical stocks offers an excellent investment opportunity for retail and institutional investors.
In tandem with pharmaceutical companies, diagnostic laboratories have also witnessed a sharp rise in their share prices. As of April 16, 2020, the stock prices of both Dr. Lal Pathlabs and Thyrocare, two of the biggest diagnostics firms in India, have grown tremendously by around 20% and 14% respectively since March 23, 2020. This meteoric rise in share prices was prompted by rising health awareness among consumers and a multi-fold increase in the number of preventive checkups and diagnostic lab testing.
Reasons for pharma stocks’ rise during market volatility
Now that you’re aware of the impact of coronavirus on pharma stocks, let’s take a closer look at some of the factors fuelling this rise.
- Tracking of global trends
The Indian financial markets are closely interlinked with the global markets. When it comes to stocks, the investors’ sentiments play a huge role in determining the price movement. The rapid rise in the share prices of pharma stocks in India is partly fuelled by the overall global trend. As of April 16, 2020, the Dow Jones U.S. Pharmaceuticals Index has also shown a growth of around 28% since March 23, 2020. The same uptrend can also be witnessed in the pharmaceutical indexes of China, the United Kingdom, and Japan. This is testament to the fact that the global outlook on pharma stocks has turned overwhelmingly positive.
- Rise in demand for drugs
The COVID-19 outbreak has significantly increased the demand for generic and branded generic drugs. This is another major reason for pharma stocks’ rise during market volatility. The demand for drugs like paracetamol, ibuprofen, and multivitamins, among others has skyrocketed ever since the coronavirus outbreak. Specific drugs like those used to treat asthma, COPD, and diabetes have also shot up excessively. Furthermore, the USFDA has awarded quick approvals for asthma drugs manufactured by Indian pharmaceutical companies, leading to a positive impact in Indian pharma stock prices.
- India’s standing in the global pharmaceutical industry
Indian pharma companies have always had a good standing in the global pharmaceutical industry. They have consistently been leaders in manufacturing of generic drugs both domestically and globally. Several drugs manufactured in India have reached the shores of various developed economies such as the UK, the EU, and the US. On top of this, India also enjoys a cost advantage, since the drugs manufactured here are more affordable. All of these factors combined have made both domestic and global investors take a good look at the Indian pharmaceutical sector, thereby driving the demand for drugs made in India.
The world has now shifted towards viewing hydroxychloroquine, the anti-malarial drug, as a potential drug that could be used in the treatment of COVID-19. This sudden shift has put the anti-malarial drug into the spotlight. Even the President of the United States recently sought help from India with respect to procurement of the drug.
Fortunately, India is one of the leading manufacturers of hydroxychloroquine with several pharma companies such as Zydus Cadila and Ipca Labs, among others, actively manufacturing the drug. Considering all of these facts, in the current scenario, the golden run of pharma stocks is unlikely to subside in the short-term.