
CDMO and Generics the next pharma growth pillars: Gurmeet Chadha
Gurmeet Chadha suggests that with corporate profitability nearing all-time highs and markets at 21 times forward earnings, investors should temper return expectations. He recommends a balanced portfolio with long-dated bonds and gold. Rural demand is showing signs of recovery, while the pharma sector, particularly CDMO and generics, presents opportunities with lower correlation to the Nifty.
Tired of too many ads?
Remove Ads
Tired of too many ads?
Remove Ads
Tired of too many ads?
Remove Ads
"People have got some bit of consolidation in last six-nine months. So, you have to readjust to the new normal. You cannot make 25% returns when you are at 21 times earnings. So, have a more balanced allocation in terms of your portfolio, include some long-dated bonds, add maybe a bit of a flavour of gold, and be a little modest in terms of expectations," says Gurmeet Chadha, Complete Circle Consultants.See, couple of things you have to see. One, our corporate profitability to GDP is now nearing all-time high. We are at almost 4.7%. The last time this had touched 5% was 2007-08. So, corporate profitability despite earning growth being mediocre is now at about 4.7% to the GDP. So, if you see last quarter earnings also, broader market, this I am talking about Nifty 500 , so broader market was about 11% plus earning growth.So, if this quarter we do slightly better, then markets could sustain these levels because you are at 21 times forward earnings, so the market is not cheap. So, the earnings are extremely important. Market is also a little bit nervous on the US trade deal and what happens before 9th of July, so that event should play out over the next few days, so that is something the market would look up to and then maybe some of the sectors which have been impacted by tariffs whether it is auto, whether it is textile, whether it is selectively pharma, and host of other sectors will take more direction there.Thirdly, most importantly, we are seeing a bit of pickup in the rural demand , that is evident in two-wheeler numbers, that is evident in farm equipment and tractor numbers, that is evident in commentary you listen to some of the fertiliser companies, etc.So, that is one good part of it. And historically, whenever monsoons have been 5% or 6% above normal, agriculture GVA is around 6%. So, it is about 2% higher than the long-term average which is 4%, which is a good sign, because we had a very soft rural economy for almost couple of years.So, now, the rural economy is coming back. Urban is still soft, probably needs a little more boost other than the rate cuts by RBI and maybe some GST cuts would come.So, the second half of the year could be better, but provided as I said, earnings play out and we do not have tariff issues. Secondly, most importantly, we have to reset our return expectations and we have been saying this for a while, we will not get 25-30% returns now.And people have got some bit of consolidation in last six-nine months. So, you have to readjust to the new normal. You cannot make 25% returns when you are at 21 times earnings. So, have a more balanced allocation in terms of your portfolio, include some long-dated bonds, add maybe a bit of a flavour of gold, and be a little modest in terms of expectations.If you break pharma into four subsets, the healthcare hospital part has done pretty well, whether it is Apollo, Max. Narayana also caught up pretty well. What I think could do well once there is more clarity is, the CDMO and generics, the market needs clarity there.CDMO in general is a huge opportunity. Already if you see the likes of Divi's, Laurus, some of the other names, they are already at their all-time high. And if you see the export numbers of last year versus now, 70% numbers have already happened in the first five-six months.Once there is more opportunity and once the Biosecure Act if at all finds light at the end of the tunnel in US, you could see Indian companies really gaining some market share vis-à-vis China. The last one is the branded generics bit, which is more like FMCG in Indian context, where valuations are slightly rich but you get steady, not much cyclicality in the earnings.So, we like Mankind in this space. We are tracking the likes of Ipca, Cipla , etc, in this space.So, we are pretty constructive. More importantly, if you see the correlation of pharma with Nifty, on a short-term basis it is around 0.6, on a long-term basis it is less than 0.5.So, when corrections happen and in a market like this you got to also see downside risk in the sector, Nifty Pharma falls less than 50%. So, for example, if you go back to 2008 when markets fell 60%, Nifty Pharma was down 27%. In covid, again it fell half, in fact it recovered the fastest post.2011 again, it fell 15% versus 20-25% broader fall in the market. So, it is very important for us to look at risk adjusted returns and low correlation also while building a portfolio and pharma has outperformed Nifty over last 10, 15, 20 years. So, it falls lesser and over a long period outperforms, so deserves more allocation and more weight in the portfolio.

Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles


Time of India
40 minutes ago
- Time of India
Jigar Mistry on 3 sectors that offer better earnings upside in Q1
Jigar Mistry , Co-Founder, Buoyant Capital , says last quarter saw more earnings hits than misses, driven by cyclicals, but larger index components negatively impacted growth, leading to consensus estimate cuts for Nifty companies for the first time since Covid. IT faces challenges due to lower deal signings and reduced rupee depreciation, pressuring revenue and margins. Pharmaceuticals, healthcare, specialty chemicals, and banking/financials offer better earnings upside . Let us talk about the current domestic economy and market strength . Inflation is in check as far as it being under the comfort band of RBI is concerned. We are expecting another 25 bps rate cut; fiscal deficit and current account are in check for our economy and for our markets. What are you banking on and how exciting will the next six months of this current year be as far as the markets are concerned? Jigar Mistry: So, yes, in one line, India is the macro darling in an otherwise uncertain world. All the numbers you mentioned, the fiscal prudence with which the government has approached the central budget, inflation data, the WPI data, everything else seems to be checking perfectly fine. So, it is not the macro that is troublesome. It is actually the internal construct with which this seems to be moving. Explore courses from Top Institutes in Please select course: Select a Course Category others Cybersecurity Project Management Artificial Intelligence PGDM Design Thinking Management Healthcare Others healthcare Data Analytics Data Science Technology Operations Management Product Management Public Policy Leadership Digital Marketing MCA CXO MBA Data Science Finance Degree Skills you'll gain: Duration: 16 Weeks Indian School of Business CERT - ISB Cybersecurity for Leaders Program India Starts on undefined Get Details by Taboola by Taboola Sponsored Links Sponsored Links Promoted Links Promoted Links You May Like Many Filipinos don't know about this! Read More Undo In the last few years, the central government, the state government, and PSU capex have driven the majority of the gross value addition in the GDP and that construct now seems to be changing. The central government, in their budget, pushed through a lot in terms of lower taxes and giving money in the hands of end consumers. The state governments have been doing a lot more. If you add up all the announced freebies, that budget is now totalling almost the entire capex budgets of the states and what they have provided in the state budgets is a much lower number. But despite that, the capex has slowed down from the states to a negative number and the central government has also pushed it out by one year. So, there is more money in the hands of low-income and middle-income houses and less money from the central government and therefore, we are seeing a slight slowdown in corporate earnings growth as well which is filtering through the lower activity. It is a great place to be macroeconomically, but it is the macro to micro switch that is a little confusing. What is your view on the earnings season? It has been almost a week and more that the quarterly earning season has started. It started with the IT majors which were a disappointment, it was a mixed Q1 for IT and Infosys in comparison, did a little better but otherwise where TCS and other IT majors were and even midcap IT at present is not really performing. For banks and financials, expectations right from the quarterly updates and the numbers are also coming in those lines. Which sector according to you will be in focus for the quarterly earnings and where will the support come in from? Jigar Mistry: If you zoom out and see where the last quarter ended, that brings the current quarter into perspective. Last quarter overall there were more hits than misses, if we compare the consensus earnings to the actual numbers that came through. Overall, there were more hits than misses but again the devil somehow is always in the detail. The growth was driven by a lot of cyclicals. Live Events You Might Also Like: Best-case scenario is a time correction in market; rebound possible in Q2: Dinshaw Irani The larger weight components in the index were contributing negatively to growth, whereas the cyclicals and turnaround stories typically have a lower weight in the index and that contributed massively. Now, because of this, for the first time since Covid, we are seeing a consensus cut their estimates into the Nifty companies. In the past five years or so, we have consistently at the start and end of the estimates been almost always aligned or there was a slight uptick and that is resulting in some amount of cuts now. Coming to the sectors where we see things playing out, IT remains a challenge for the way we see this. Our belief is that essentially we are getting into an environment where the amount of new deal signs will be much lower. At the same time, the rupee depreciation will be much lower. When you combine these two, you will have pressure on revenue as well as on margins and it is not like valuations are cheap, relative to the history they are cheaper relative to the market. But that is not how IT acts because IT is a global sectoral play. Where we do see reasonably decent upsides in terms of earnings are pharmaceuticals, healthcare, specialty chemicals in some places, and obviously banking and financials is one place we are quite interested in. Looking at this new trade world order, is there any red flag that can impact the strategizing of your portfolio in terms of sectors that you would not want to go ahead with? If you are overvalued over there, you might just want to cut down your weightages. As far as your portfolio management is concerned, do you want to just mitigate some kind of a risk? Jigar Mistry: Yes, there are two or three things. One is the fat tail of the probabilistic curve and one much closer. Given the rise in retail participation, we are seeing some huge increases in the number of shareholders for many businesses. We call them narrative stocks because the growth in the market capitalization has been much sharper compared to the growth in earnings for these businesses. You Might Also Like: Keep investment goals in mind; focus on a five-year horizon for better results: Shiv Chanani Wherever you see those playing out, liquidity is a two-way sword, that comes easy and goes away easy as well. Wherever you see a huge increase in market cap and a commensurate increase in earnings and accompanied with a very large increase in number of shares. These are the businesses we are a little wary about. Secondly, look into this situation where there are very strong singular monopolistic businesses. Like liquidity, monopoly also works in very questionable fashion because what can be given with the stroke of a pen can be taken away as we are seeing with one of the exchange companies on Thursday. We saw this with the gas companies earlier and now, we are seeing the same with these businesses, essentially where the reduction in administered price took away the monopoly of these businesses. The exchange of power was dealt with in a similar manner. Many of those businesses have a singular party ordering and when those are trading at 50-60 times, I would be wary of that. The last part is and maybe we can call this a fat-tailed philosophical line of thought, but historically wherever there have been revolutions, go back to the agricultural revolution in 10,000 BC or the Dutch, English, and French revolution 1600 to 1800s, there has always been an accompanying conflict with it. As AI takes over, that is one area where we should be a lot more prepared to face several types of conflict. Therefore wherever you find a lot of excess being built out, it makes sense to get a little more defensive along the way.


Mint
an hour ago
- Mint
Stocks to buy under ₹100: Experts recommend three shares to buy today — 25 July 2025
Stocks to buy under ₹ 100: The benchmark indices of the Indian stock market began the session on a weak footing and remained under pressure throughout the weekly expiry, as lacklustre Q1 results 2025 from IT majors triggered a sharp sell-off in the sector, weighing on overall sentiment. Caution also prevailed before next week's U.S. Federal Reserve policy decision, likely to steer global market direction. The Sensex dropped 542.47 points, or 0.66%, to close at 82,184.17, while the Nifty fell 157.80 points, or 0.63%, settling at 25,062.10. Sector-wise, PSU Banks, Healthcare, and Pharma outperformed in positive territory, bucking the broader downtrend. In contrast, heavy selling was seen across most other sectors, with the IT index sliding over 2%, leading the losses. Broader markets also came under selling pressure, with the Nifty Midcap index down 0.58% and the Small-cap index shedding 1.09%, indicating a weak undertone across segments. On the outlook of the Indian stock market today, Siddhartha Khemka, Head of Research — Wealth Management at Motilal Oswal, said, "We expect Indian markets to remain range-bound, with stock/sector-specific movements driven by Q1 results 2025. Meanwhile, global developments, including formalisation of the UK FTA and updates on the India-US trade deal, will be closely tracked by market participants." Speaking on the outlook of the Nifty 50 today, Nagaraj Shetti, Senior Technical Research Analyst at HDFC Securities, said, "The underlying trend of the Nifty 50 index is still weak. Strong overhead resistance and the formation of a bearish pattern indicate chances of more weakness in the short term. A slide below 24,900 levels could open some weakness down to 24,500 levels soon." Asked about the outlook of the Bank Nifty today, Shiju Kuthupalakkal, Senior Manager of Technical Research at Prabhudas Lilladher, said, "The Bank Nifty index continues to move within a tight range, having the tough resistance barrier near the 57,300 zone, which needs to be breached decisively and expect further upward movement in the coming days. On the downside, the 50-DEMA zone at the 56,000 level shall be an important and crucial support that must be sustained to maintain the overall bias and sentiment intact." Regarding stocks to buy today, market experts — Sumeet Bagadia, Executive Director at Choice Broking; Sugandha Sachdeva, Founder of SS WealthStreet; and Anshul Jain, Head of Research at Lakshmishree Investment, recommended three intraday stocks for today under ₹ 100: Prozone Realty, Balaji Telefilms, and Elpro International. 1] Prozone Realty: Buy at ₹ 41.90, Target ₹ 45.50, Stop Loss ₹ 40.50. 2] Elpro International: Buy at ₹ 97, Targets ₹ 100.50, ₹ 102.80, Stop Loss ₹ 94.80. 3] Balaji Telefilms: Buy at ₹ 98.50, Target ₹ 105, Stop Loss ₹ 95. Disclaimer: The views and recommendations made above are those of individual analysts or brokerage companies and not of Mint. We advise investors to check with certified experts before making any investment decisions.


Mint
an hour ago
- Mint
Buy or sell: Vaishali Parekh recommends three stocks to buy today — 25 July 2025
Buy or sell stocks: The benchmark indices of the Indian stock market began the session on a weak footing and remained under pressure throughout the weekly expiry, as lacklustre Q1 results 2025 from IT majors triggered a sharp sell-off in the sector, weighing on overall sentiment. Caution also prevailed before next week's U.S. Federal Reserve policy decision, likely to steer global market direction. The Sensex dropped 542.47 points, or 0.66%, to close at 82,184.17, while the Nifty fell 157.80 points, or 0.63%, settling at 25,062.10. Sector-wise, PSU Banks, Healthcare, and Pharma outperformed in positive territory, bucking the broader downtrend. In contrast, heavy selling was seen across most other sectors, with the IT index sliding over 2%, leading the losses. Broader markets also came under selling pressure, with the Nifty Midcap index down 0.58% and the Small-cap index shedding 1.09%, indicating a weak undertone across segments. Vaishali Parekh, Vice President of Technical Research at Prabhudas Lilladher, believes the Indian stock market sentiment is sideways to positive. The Nifty 50 index is sustaining above the 50-DEMA support of 24,900, while the key benchmark index faces resistance at 25,250. Speaking on the outlook of the Nifty 50 today, Vaishali Parekh said, "The Nifty 50 index once again found resistance near the hurdle of 25,250 zone and witnessed profit booking to slip towards the 25,000 zone to indicate a tight rangebound movement between 25,000 and 25,250 level for quite some time, with overall bias maintained positive. As mentioned earlier, we continue to maintain our stance, would need a decisive breach above the 25,250 to 25,300 zone to continue with the positive movement further ahead and expect the next targets of 25,500 and 25,700 levels in the coming days, provided the crucial support zone of 24,900 level is sustained as of now." "The Bank Nifty index continues to move within a tight range, having the tough resistance barrier near the 57,300 zone, which needs to be breached decisively and expect further upward movement in the coming days. On the downside, the 50-DEMA zone at the 56,000 level shall be an important and crucial support which needs to be sustained to maintain the overall bias and sentiment intact," said Parekh. Parekh said that the immediate support for the Nifty 50 index is at 24,900, while the resistance is at 25,300. The Bank Nifty would have a daily range of 56,500 to 57,600. Regarding stocks to buy today, Vaishali Parekh recommended three buy-or-sell stocks: Bandhan Bank, REC, and Hubtown. 1] Bandhan Bank: Buy at ₹ 184, Target ₹ 190, Stop Loss ₹ 180; 2] REC: Buy at ₹ 405.50, Target ₹ 412, Stop Loss ₹ 398; and 3] Hubtown: Buy at ₹ 305, Target ₹ 325, Stop Loss ₹ 295. Disclaimer: The views and recommendations made above are those of individual analysts or brokerage companies and not of Mint. We advise investors to check with certified experts before making any investment decisions.