Medicine for bearish markets: 5 Indian pharma stocks with upside potential of up to 32%

Textile is one of the oldest industrial sectors in India. However, right from labour issues to smaller Asian countries becoming more competitive in terms of cost of production, different segments of the textile industry have faced more headwinds than tailwinds in their history of existence. This list is drawn from Stock Reports Plus, powered by Refinitiv, with over 4,000 listed stocks along with detailed company analysis focusing on five key components - earnings, fundamentals, relative valuation, risk and price momentum.

Elixir Equities Director, Dipan Mehta, argues that new age companies such as Zomato, Policy Bazaar, Nykaa, and Paytm are stocks of the decade of the 2030s and could be huge multibaggers over the next 5-10 years. However, these companies are still in their investment phase, which reflects in their P&L, although they are making strong efforts to get into EBITDA positive. Regarding concerns about Page's decline, Mehta suggests that a demand slump due to higher inflation and uncertainty around weather patterns may have impacted Page industries.

Despite the fact in the last one year, only negative things have been said about IT companies, look at their stocks performance. Except one large IT stock which had been a perennial under performer, most of the other IT stocks are not very far from the highs they had touched almost two years back. Infact relative performance of some IT is far better than many of the stocks and sectors which have been headlines. While it might be contrarian buy, there is high probability that IT stocks perform better than most in bearish market conditions. Stock Reports Plus, powered by Refinitiv, is a comprehensive research report that evaluates five key components of 4,000+ listed stocks - earnings, fundamentals, relative valuation, risk and price momentum to generate standardized scores.

Both, in terms of bottomline and stock price performance, pharma stocks had been under pressure for a long time. Partly this under performance was due to over valuation at which these companies were trading since 2015. Also stocks came in the overowned category for both the institutional and retail investors portfolio. Last but not the least, close to 2014, USFDA inspections became both more in numbers and stricter, many companies which assumed that they can take care of anything, got a rude shock. After all the head and tailwinds, many companies which had changed their focus, fruits are visible in terms of them moving into new markets and better financials.

It is not very common to see tailwinds emerging for an industry at a time when it is ideal to own stocks from that space. But in the case of pharmaceutical companies, tailwinds have emerged at a time when valuations of the overall market are expensive and it makes sense to look at pharma stocks as they tend to act as defensive stocks in volatile times with bearish bias. However they should not be clubbed together; each company has its own operating matrix. A company which has a strong domestic brand in the generic drugs segment, will not be getting impacted by what is happening in the US pharma market or what USFDA does. But yes, if it might be impacted by what happens in China.

On Wednesday, thanks to one stock, Reliance industry, nifty was able to make a comeback. But what is more important is that market breadth, which has been under pressure for most of the sessions for the last three weeks, was in the green territory for most of the time. It is important to keep one eye on market breadth as that would be a more reliable indicator for deciding the strength and possible time frame for which the rally may last. Another thing which one should monitor closely is when the numbers of how much money has flown to mutual funds in the month of March which would get released in early April. This would be an indication of how much impact did AMFI advisory to mutual funds had on ground. Also, this would answer the question, whether this is another short term profit booking move or a beginning of a long phase correction and valuation adjustment.During this phase, analysts are bullish on select stocks from different sectors, some of which are either the leaders of their sector or part of the top three companies which are known to be well managed. ET screener powered by Refinitiv’s Stock Report Plus lists down quality stocks with high upside potential over the next 12 months, having an average recommendation rating of “buy” or strong buy . This predefined screener is only available to ET Prime users.

Once again bulls have shown that while bears have the right to make a comeback attempt, bulls who have ruled the street for the last three years are in no mood to give up easily. That was reflected in improved market breadth even though nifty and sensex had been only moving in range bound mode. While the recent performance has been good, given the valuations, it would be better to be selectively bullish and put more checks and balances both in terms of quantitative and qualitative parameters while looking at stocks.

While Nifty and Sensex have seen some respite and given the fact that few mega stocks have the ability to push indices even higher, one cannot rule out the possibility of reading the headlines “ nifty forms a new high” very soon. But as we have seen in the recent past, what nifty does and what is happening in the broader market can be very different. So, it would be better to focus on what is happening in sectors and companies, are there some tailwinds that are likely to lead to better overall growth of the sector and hence the companies. Even in those sectors stick with companies that have a proven track record of surviving economic cycles and on financial parameters they are better placed than others. Because it is finally the earnings which will determine whether the stock is able to outperform or underperform broader market indices. We take a look at four stocks where on two parameters, that is net margins and return on equity, the companies are clearly better placed and there are clear sectoral tailwinds.

From being totally under the control of the bulls, Dalal street has seen occasional sightings of bears in the last four weeks. While the reasons have been different at various points of time, the first indication that bears might be getting up from their sleep are surely on the wall. So it would be better to add “ caution” to your dictionary when looking at the stock market. The caution is also getting reflected in the overall count of stocks which have seen an improvement in their score. Also more importantly, it is time to take a step back, think and then make a decision both when buying and selling any stock. These selected stocks depict a strong upward trajectory in their overall average score. This implies that there has been a significant improvement in their market outlook in the given time frame.

Gone are the days, when a single company was considered a bellwether for IT sector stock. Today, whether it is a large or mid sized company, all have different focus areas and hence their quarterly results tend to differ from one another. Stock Reports Plus, powered by Refinitiv, is a comprehensive research report that evaluates five key components of 4,000+ listed stocks - earnings, fundamentals, relative valuation, risk and price momentum to generate standardized scores.