Pharma Mutual Funds – Best Option to Invest in 2025?

Pharmaceutical companies have been under stress from quite some time, particularly companies with high exposure in the US market such as Lupin Limited. As these companies face headwinds, the pharma stock prices have halved to nearly 40% over the past three years.

There are certain major factors which lead to the downfall of these companies. So, before we give our recommendations regarding the Pharma Sector Mutual Funds, let’s understand these pressure points:

1. Declining Profits:

Most of the pharmaceutical companies are behind the US Fed Approvals. With almost all companies exporting to US, facing regulatory hurdles is nothing but an obvious expectation. Due to this, their growth in terms of their Exports is likely to come down heavily. 6 of the top 8 Indian Pharma Companies have more than 40% of their revenue from the USA.

2. Strict Inspection for Approvals:

In the recent year or two, the US FDA seems to be working overtime in India with its Inspection team keeping a close eye on each pharmaceutical company. There have been reports on the pharma sector that indicate the FDA aggregating approvals of “Abbreviated New Drug Applications’ by 50% over the next year or two. This increase in approvals means a fair increase in the competition which will in turn lead to lower prices. On the positive side, the increase in FDA approvals will make the company becoming stronger fundamentally and will lead to a steady growth in the long-run.

3. Channel consolidation:

The US markets are tapped by the Indian pharmaceutical companies through various supply chains. In the past two years, the channels in question have been consolidated. Abhijit Mukherjee, COO of Dr. Reddy’s Laboratories, pointed out that channel consolidation had resulted in an excessive price abrasion. This trend has continued for quite some time now. The lower number of buyers and an Increasing number of suppliers tilt the scale of balance, resulting in more negotiating power in the hands of buyers. Although volumes remain unaffected, consolidation might hit margins. Ramesh Swaminathan, CFO, Lupin said, “The pricing pressure is inevitable since there is further consolidation in the channel end in the US.”

4. New Entrants in the Market:

Indian pharmaceutical companies were one of the first in line to get approvals from the US FDA. Since the market is now being invaded by other contenders, nearly a third of approvals have been given to players from outside traditional markets. Companies from Turkey, New Zealand, Taiwan and Bangladesh have now got clearance to sell products in the USA. A new entrant generally uses price penetration to capture the market, the weight of which is borne by the rest of the established players.

5. Bullish Stocks in other Sectors:

Indian markets are staring in the face of a bull run. Even though private sector numbers are muted, growth is evidently visible. The scenario is quite the contrary for pharmaceutical stocks. The money will chase companies which have high growth rate and better prospects. Pharmaceutical companies are a victim of headwinds in the global market, especially their biggest market. Unless companies in other sectors are faced by similar challenges leading to them being overpriced or pharmaceutical stocks reach convincing valuations, we can see investors steering clear of pharma companies. Now, let’s progress to the penultimate question i.e.

Should you invest in Pharma Mutual Fund?

Though the end of such issues is hard to predict, we believe that some of these will get sorted over the next 2 to 3 years due to the remedial actions being taken by these companies. Also, strong product pipeline and increasing product launches over the next couple of years by Pharma Companies will more than counteract the price erosion effect in the base portfolio.

What’s our take?

Since the last 2 to 3 years, we think that the downtrend has come to a stabilizing point and in the near future, it will be a very good market for the Pharma companies.

The Export business of the Pharma Sector Companies will see an exponential growth and they will generate a good amount of revenue as well as complementing the same.

On this front, we are recommending 2 Pharma Mutual Fund Schemes where you will get a bunch of Pharma Stocks with full research done by Fund houses.