Friday, January 28, 2011 How to trade in pharma stocks now?

How to trade in pharma stocks now?

Pharma stocks were beaten down in today`s session. The BSE Healthcare index dropped 2.61% or 168.08 points to 6,283.20. Shares of Lupin (5.25%), Ranbaxy Laboratories (3.89%), Cipla (2.89%), Dr Reddy`s Laboratories (2%) all declined.

In an exclusive interview with, Prashanth Tapse, Sr Research Analyst at Mehta Equities shares his views on sector along with providing stock specific trading strategy.

Sector view:

Indian domestic pharma sector continued its strong show and recorded a 16.5% growth during January-December last year. The Rs 467.87-billion pharma market has been on an upswing over the last four years with a growth of 13-17%, buoyed by a strong demand, improved spending on healthcare and rising middle class incomes. Overall industry is posting healthy growth consecutively for the second year reflects the inherent strengths of the industry and improving healthcare standards in the country. Despite very high inflation rates, demand for drugs and pharmaceuticals are on the rise, and is likely to continue next year as well.

Good growth across all therapies, indicating strong demand on the supply side with improving economic conditions has spurred spending on healthcare. Going forward we expect the trend to continue, with market growth for 2011 forecast in the range of 15-18%.

Stock Specific View:

Lupin: The stock was in action in last couple of days mainly on the back reports says that Lupin and its subsidiary Lupin Pharmaceuticals Inc have settled ongoing litigation with Sunovion Pharmaceuticals over Lunesta (Eszopiclone) tablets. The settlement will allow Lupin to sell its generic version of Lunesta under license as soon as November 30, 2013. The date would be pushed back to May 31, 2014, if Sunovion obtains six months additional pediatric exclusivity for the product. Technically the stock has set SELL signal on charts with immediate target of Rs 430, if break the Rs 430 level then it can test Rs 410-415 levels.

Ranbaxy Laboratories: Marking for a complete change of top management three years after Japan`s Daiichi Sankyo took over the country`s largest drugmaker. Key person are now looking things on different space. Today the stock reacted on the news that Mr. Omesh Sethi, president and chief financial officer has resigned from the services of the company. On technical charts 500 act as major support level for the stock, and hence we recommend investors to avoid the counter in the near term. We will re-visit the counter as and when we get a buying signal.

Cipla: The stock is under relentless selling pressure. We expect a stock to test 315-320 before taking fresh positive momentum in the stock.

Dr Reddy`s Laboratories: Earning below expectation was the cause for the negative performance on the counter. Strong sales in the US helped Dr Reddy`s Laboratories Ltd swing to a profit in the fiscal`s third quarter from a loss in the year-ago period, but its earnings still fell short of expectations because of weak European revenue growth and higher expenses including litigation costs. We believe that the current weakness in the stock can be viewed as a buying opportunity with a short term target of Rs 1,665 applying strict stop loss of Rs 1,510.

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