Nifty Pharma index down over 7% in last three days; why are pharma stocks falling?

Falling for the third consecutive session, the Nifty Pharma index plunged almost 3 per cent in intraday trade on Tuesday, January 28, with shares of Granules India, Biocon, Sun Pharma and Lupin among the top losers. The Nifty Pharma index opened at 21,266.80 against its previous close of 21,292.30 and fell 2.90 per cent to the level of 20,673.80. Around 11:15 AM, the index was 2.44 per cent down at 20,772.85, while the benchmark Nifty 50 was 0.54 per cent up.

Considering today's low, the Nifty pharma index has fallen over 7 per cent in the last three days. On a monthly scale, the index has declined nearly 12 per cent against a 3 per cent fall in the Nifty 50.

Why are pharma stocks falling?

The recent fall in pharmaceutical stocks is driven by concerns over US President Donald Trump's trade policies and subdued December quarter (Q3) earnings. The US is a key market for Indian pharmaceutical companies, contributing a substantial share of their revenues.

Indian pharma companies faced several challenges, such as heightened US FDA scrutiny and rising distribution costs in the US, in Donald Trump's first term. Concerns are high that Trump's second term could also mean tough times for the Indian pharma players.

"Donald Trump’s 'America first' approach posed significant challenges for the Indian pharmaceutical industry during his first term. Heightened US FDA scrutiny, and rising distribution costs increased the sector's woes. In his second term, concerns are resurfacing over the challenges Indian pharma companies might face," Prashanth Tapse, Senior VP (Research), Mehta Equities, said.

"The industry's recent underperformance further compounds these concerns. In Q3, eight of ten major pharma companies reported earnings below expectations, signalling a tough road ahead," Tapse said.

The Budget 2025 could be a trigger for the pharma sector. The industry expects the government to expand the scope of the production-linked incentive (PLI) scheme for the medical technology sector.

"We anticipate that the Budget will unleash the immense potential of the pharma sector, projected to reach $130 billion by 2030 and $440 billion by 2047. A streamlined regulatory approval process is essential to enhance investments and productivity. We urge the government to expand the scope of the PLI scheme to make it more accessible for the medical technology sector, thereby boosting our manufacturing capabilities," said Sushil Suri, Chairman and Managing Director, Morepen Laboratories.

"A unified regulatory framework will not only ease business operations but also attract substantial investments, fostering competitiveness within the industry. Timely approvals for new drugs, coupled with a focus on R&D investments, will empower companies to innovate and contribute to our goal of becoming self-reliant," said Suri.

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