logo
CDMO and Generics the next pharma growth pillars: Gurmeet Chadha

CDMO and Generics the next pharma growth pillars: Gurmeet Chadha

Time of India03-07-2025
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.
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.
Orange background

Try Our AI Features

Explore what Daily8 AI can do for you:

Comments

No comments yet...

Related Articles

Retail investors start to warm up to corporate bonds post SEBI reforms: Grip's Nikhil Aggarwal
Retail investors start to warm up to corporate bonds post SEBI reforms: Grip's Nikhil Aggarwal

Economic Times

time39 minutes ago

  • Economic Times

Retail investors start to warm up to corporate bonds post SEBI reforms: Grip's Nikhil Aggarwal

Tired of too many ads? Remove Ads Tired of too many ads? Remove Ads Popular in Markets 1. India's ESG bond market picks up as global and domestic push align: Vineet Agrawal of Jiraaf Tired of too many ads? Remove Ads India's fixed income landscape is undergoing a silent transformation. Once dominated by institutions and high-net-worth individuals, the corporate bond market is now beginning to attract the attention of retail investors — thanks in large part to recent regulatory reforms by Aggarwal, Founder & Group CEO of Grip, explains how measures such as the reduction in minimum ticket sizes, improved transparency, and digital access are driving wider traditional instruments like FDs lose their edge, retail investors are finally exploring corporate bonds for better yield, safety, and diversification. Edited Excerpts –A) The current decrease in interest rates is increasing the appeal of bond issuances for government entities and companies to raise are increasingly turning to the bond market, with a higher preference for short-term bonds, as banks have been slow in passing on previous rate to a primary database, corporations issued ₹61,200 crore in in up to five-year bonds in May 2025, which is about three times the amount of money raised for the same period in May periods of declining interest rates in India have seen a surge in bond issuances. For instance, in 2020-2021, when RBI cut rates aggressively, corporate bond issuances rose to record levels as issuers locked in lower borrowing to statistics from Prime Database, Indian companies raised ₹987 Bn ($11.68 billion) through bond sales in April 2025, attracted by the relative comfort of the local markets and alluring interest rates. That was the highest on record for the first month of a financial market broadly anticipates that the Reserve Bank of India (RBI) will reduce policy rates further in the coming months, as inflation remains issuance is anticipated to be further stimulated by lower rates, which will also increase the value of existing bonds with greater yields, thereby benefiting investors through capital appreciation.A) Corporate bond issuance in India is expected to see a significant increase in the coming quarters, driven by a series of recent and anticipated rate cuts by the its continuous attempts to boost economic recovery and revive credit demand, the RBI has enacted a number of repo rate cuts in 2025, including a 25-basis point cut in April that brought the rate down to 6.00%, following an earlier cut in February. This is lowering the borrowing costs for inflation cools and monetary policy turns accommodative, more corporates are tapping the bond market to refinance existing high-cost debt, fund capex and working capital needs. In FY25, companies raised over ₹9.9 Trillion through corporate bonds, reaching a record with strong liquidity and investor interest for higher-yielding products, market circumstances may be quite supportive of increased primary bond activity in the coming quarters.A) With the recent interest rate cuts, the short-term secured bonds have grown in popularity among investors. Short-term bonds expiring within five years accounted for more than half of the new bond-securitised debt issued in May, up from one-third in April.5 Following factors can be attributed driving this trend:a. Rate cut anticipation: Companies are opting for shorter maturity bonds to avoid locking in at current rates in the anticipation of rate cuts when cheaper financing could be available.b. Liquidity Infusion: Since late 2024, the RBI's actions to increase banking system liquidity have primarily benefited non-banking financial companies (NBFCs), allowing them to borrow more through short-term bonds.c. Yield Advantage: Short-term secured bonds now yield much more (up to 80 basis points) than similar government securities, making them appealing to businesses and investors.d. Hedging Against Uncertainty: As the long-term interest rate trajectory and macroeconomic environment remain unpredictable, issuers and investors choose short-term instruments.e. Flexible Funding: Short-term bonds provide for quick refinancing or bridge funding without tying in money for an extended period.A) Till 2023 this market saw limited participation from retail investors with 99.5% of the market being driven by institutional investors. The primary barrier being a minimum investment amount of INR 10 institutional investors still dominate the short-term corporate bond space, retail participation is gradually increasing. Recent regulatory changes by SEBI in 2023 have transformed the fixed income investment landscape, making it far more accessible and attractive for retail Excluding transaction sizes greater than 50L (which could indicatively fall into institutional transactions)• Low Minimum Investment Amount: Minimum investment thresholds were significantly reduced, with most listed bonds now accessible for ₹10,000 with some bonds also available at ₹1,000, encouraging broader participation.• Greater Transparency: Issuers are now subject to stricter credit rating and disclosure norms, empowering investors to make well-informed decisions using independent reports.• Secure Settlements: All investments are enabled only via the stock exchange with T+1 settlement in the clients' demat accounts.• Enhanced Liquidity for Clients: Introduction of demat settlements via exchanges has increased liquidity, allowing investors to exit investments more easily.• Tax Incentives: TDS on bonds has been exempted up to ₹10,000 annually per issuer.A) The green bond market has experienced significant growth in the last several years, with positive year-over-year growth every year since 20118. In 2024, globally, the green bonds market achieves record levels of issuance and outperformed the conventional bond market by close to 2%.In India, the momentum picked up after SEBI issued green bond guidelines in 2017. The Government of India began issuing Sovereign Green Bonds (SGrBs) in FY 2022-23, raising a total of ₹57,697 crore through FY mutual funds, banks, and insurance companies are increasingly integrating ESG considerations into their portfolios, driven by regulatory encouragement and global best are also drawn by the dual promise of measurable social, environmental impact and financial stability provided by SEBI's strict disclosure and verification renewable energy leaders (Azure Power, ReNew, Adani Green, etc.) have issued green bonds, and others are entering the sustainability bond recent introduction of SEBI's ESG and sustainability-linked bond framework is expected to unlock new capital-raising opportunities across a range of following categories of issuers are especially well-positioned to benefit from and drive this evolving market:a. Infrastructure and Construction: Companies engaged in large-scale infrastructure projects such as urban transport systems, highways, smart cities, water supply, and sanitation are strong candidates for ESG or sustainability-linked bond issuances.b. Renewable Energy and Clean Technology: Firms operating in solar, wind, hydro, bioenergy, energy storage, and electric mobility stand to benefit the most. These sectors directly contribute to India's Nationally Determined Contributions (NDCs) and net-zero targets, making them ideal for green bond issuance.c. Affordable Housing, Healthcare, and Social Infrastructure: Issuers involved in building affordable housing, healthcare facilities, sanitation, education infrastructure, and gender-focused programs are natural fits for social bonds and sustainability-linked instruments.d. Financial Services (BFSI): Banks and non-banking financial companies with established ESG policies are well-positioned to issue ESG bonds or serve as intermediaries, channeling funds to underlying green and social projects.e. Large Listed Corporates: Publicly listed companies already complying with SEBI's Business Responsibility and Sustainability Reporting (BRSR) requirements particularly those in the top 1,000 listed entities are better equipped to meet the data, disclosure, and governance demands of ESG bonds.(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)

Sobha Ltd shares in focus as Q1 PAT surges 123% YoY
Sobha Ltd shares in focus as Q1 PAT surges 123% YoY

Economic Times

time39 minutes ago

  • Economic Times

Sobha Ltd shares in focus as Q1 PAT surges 123% YoY

(What's moving Sensex and Nifty Track latest market news, stock tips, Budget 2025, Share Market on Budget 2025 and expert advice, on ETMarkets. Also, is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .) Subscribe to ET Prime and read the Economic Times ePaper Sensex Today. Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

DOWNLOAD THE APP

Get Started Now: Download the App

Ready to dive into a world of global content with local flavor? Download Daily8 app today from your preferred app store and start exploring.
app-storeplay-store