Pharma Stocks Outlook
for the week – 27.06.2016 to 01.07.2016, Seen weak next week as Europe exposure
to weigh
Stocks of pharmaceutical companies are likely to trade with
a negative bias next week as investors
tackle the uncertainty caused by UK's decision to exit the
European Union and its impact on some
firms which have considerable exposure to the region.
Volatility is also expected as traders roll over
positions to July derivatives contracts ahead of the expiry
of June series on Thursday. Volatility in the
euro and pound sterling following UK's decision to leave the
Union is seen causing considerable
impact on some pharmaceutical companies' going forward.
Total sales in the EU, including UK, account for 22% of
sales of Aurobindo Pharma, about 27% of
sales of Ipca Laboratories, 13% of sales of Torrent
Pharmaceuticals, 9% of sales of Glenmark
Pharmaceuticals and 5% of sales of Dr Reddy's Laboratories.
Wockhardt has a manufacturing facility
in the UK, and the country contributes a third of its
revenue. While we expect the broader market to
recover next week, with some volatility induced by foreign
investors selling on rise, the risk-averse
approach following the UK referendum is seen weighing on
pharmaceutical stocks, which is still seen
reeling under regulatory issues concerning some companies.
Banks and automobile we are positive about, but we are still
uncertain about pharmaceutical stocks
as many have regulatory issues. Many pharmaceutical
companies are troubled by global regulators,
particularly the US Food and Drug Administration, over
violation of quality norms at their
manufacturing plants. This has hurt earnings of all these
companies, which is weighing on investor
sentiment.
Most large-cap pharmaceutical stocks are likely to trade
with a negative bias or are seen range
bound. The only stock the analyst is positive about in the
sector is the mid-cap Divi's Laboratories.
The analyst expects the scrip to gain 5-6% from yesterday's
closing price of 1,100 rupees. This week,
the stock declined 1.2%. Over the medium term, the stock is
expected to remain weak. Glenmark
Pharmaceuticals is also expected to remain weak in the
medium-to-long term.