Pharma Stocks

Things to Consider Before Investing in Pharma Stocks

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Every time you take a medicine, you might consider the economics that went into making it. In reality, India’s pharma business offers a diverse set of potential and difficulties, making it worthwhile to investigate. If you are considering investing in pharma stocks, it is a good idea to check your provident fund balance to see how much money you have available to invest. The growing demand for pharmaceuticals, as well as people’ expanding healthcare budgets, demonstrates the industry’s enormous potential for future growth. Regulatory pressures, on the other hand, force it to step more carefully. It would be fantastic if you could use its potential to help you achieve your objectives.

India is regarded as the world’s ‘pharmacy.’ Simply put, we are one of the most important marketplaces for low-cost generic medications, bulk drugs, and vaccines. We’re also a major producer of critical components and raw materials used in medicinal formulations.

India’s Pharma Situation: New Businesses and Growth

India is a developing country with a large population, as we all know. In addition, the Indian economy is rapidly improving in terms of social factors such as health.

Many new enterprises have sprouted to meet demands such as preventative healthcare, mental health, and the treatment of fatal diseases, to name a few. The discovery of newer, more effective drugs is one of them. As a result of this expansion, India is now the world’s one of the largest pharmaceutical markets in terms of volume. The FD interest for senior citizens is a good benchmark for the potential returns from investing in pharma stocks.

The Coronavirus Pandemic and Pharmaceutical Sector Rise

The pharmaceutical industry has a big influence on how much consumers pay for pharmaceuticals and how they acquire them. In recent years, the global pharmaceutical sector has seen tremendous growth. Hard money lenders can be a good option for pharmaceutical companies that need quick access to capital to fund new research and development projects. Pharmaceutical companies working on coronavirus treatments and vaccines have received significantly greater attention as a result of the COVID-19 pandemic. However, these advantages come with major drawbacks, and some markets are more favourable to pharmaceutical companies than others.

The pandemic has prompted the government to increase its spending on public healthcare. The current Union budget allocated 1118 % more to healthcare than the revised forecast. By 2025, the national expenditure on public healthcare is expected to rise to 2.5 percent of GDP, up from 1.15 percent presently. Furthermore, by 2023, there are plans to establish a fund of about Rs 1 lakh crore ($1.3 billion) to assist drug businesses in producing ingredients locally.

Manufacturing costs in the United States are among the lowest in the world. Apart from 40 percent of generic demand in the United States and 25 percent of all medications from the United Kingdom, India is the world’s largest provider of generic medicines, accounting for 20-22 % of worldwide export volume. By 2025, India’s pharmaceutical industry is anticipated to be worth $100 billion.

Significant improvements

In recent years, India’s pharmaceutical industry has gotten a boost from a variety of sources. The pandemic, for starters, impacted China’s supply networks, bolstering Indian exporters. Second, the US eased import bans imposed on some Indian pharmaceutical businesses after their operations failed to meet American quality standards.

All of these aspects conspired to propel the Nifty Pharma Index to its greatest annual gains since 2003, making it the best-performing sector in 2020.

Factors to keep in mind before stepping investing foot in pharma sector

When it comes to investing in pharmaceutical companies, there are a few key factors to consider.

Business structure

It’s critical to comprehend the fundamental business model. Is the business selling completed pharmaceuticals or APIs (active pharmaceutical ingredients, or the core ingredient)? Is it more profitable to sell in regulated markets than markets with little regulation? In comparison to peers, how much does it spend on research? Is it reliant on a small number of goods for sales or profitability, posing a risk?

Therapeutic area focus

Each company has specific therapeutic areas (i.e., the ailment being treated) that provide different growth potential. This can also differ by country. The quality of this mix has a significant impact on India’s and other countries’ growth and profitability prospects. Dermatology, oncology, ophthalmology, and respiratory medications, for example, have attracted the interest of Indian generic companies in the US market in recent years.

Research Focus

Pharmaceutical businesses have been boosting their R&D spending, which will help them flourish in the future. Which product areas are being prioritised, how much spending is increasing, and the chance of success are all things to keep an eye on? Licensing opportunities might be found in research pipelines with products in advanced stages of development or potential candidates.

Generic filings in the United States 

The United States is an important market for both revenue and profit. A solid pipeline of registrations is great news, as are launches with a six-month exclusivity term (during which no other generic competitor can sell). Litigation or delayed approvals, on the other hand, are risks to be aware of.

Gross Margin

In India, we define gross margin as the difference between sales and material expenses. Gross margins should have a consistent or increasing trend, and the larger the gross margin relative to rivals, the better.

Usage of Surplus Cash

Pharmaceutical firms have excellent cash balances because their cash flows are healthy in comparison to capital investments. These funds can be used to reinvest in the firm, such as in R&D or capex, or to purchase a portfolio of goods under development or an entire company. These can assist a corporation in climbing the corporate ladder. On the other hand, a bad acquisition can hurt a company’s performance and balance sheet.


The pharma business appears to be promising for investors, given the solid framework of demand on a national and international scale, as well as a history of great market performance. Mutual funds that invest in pharmaceutical and healthcare equities will undoubtedly be a good addition to your investment portfolio, especially if you’re seeking for assets that are relatively immune to market fluctuations.