Pharma stocks decline as Nifty Pharma index slips 2%; Alkem, Ipca, Divi’s lead losses

The Nifty Pharma index faced selling pressure on Monday, February 10, tumbling 2 per cent to an intraday low of 21,634.75. Investors dumped shares amid concerns over potential U.S. trade policies, overvaluation of stocks, and margin call-triggered sell-offs.

Market-wide decline, Alkem Labs sees biggest drop

Of the 20 stocks in the Nifty Pharma index, 19 traded in the red. Alkem Laboratories led the downturn with a 7 per cent drop, followed by Ipca Laboratories and Laurus Labs, which declined over 4 per cent and 3 per cent, respectively. Divi’s Labs, Granules, and Aurobindo Pharma also saw losses in the range of 2-3 per cent. Other pharma majors such as Biocon, Zydus Life, Ajanta Pharma, Lupin, and Gland Pharma recorded drops of 2-2.5 per cent.

Trump tariff fears weigh on sentiment

Market experts point to growing uncertainty over potential protectionist trade policies under former U.S. President Donald Trump, who is a leading contender in the 2024 election. If tariffs on pharmaceutical imports are imposed, Indian drug manufacturers relying on exports to the U.S. may face higher costs, squeezed margins, and reduced competitiveness. The sector is already grappling with rising raw material expenses, particularly in Active Pharmaceutical Ingredients (APIs), further adding to cost pressures.

Overvaluation concerns trigger correction

Pharma stocks have been trading at stretched valuations after a strong rally in 2023. Analysts believe the sector’s premium pricing, coupled with recent market corrections, has triggered a revaluation. Analysts highlighted that even fairly valued stocks are witnessing selling pressure due to a contraction in overall market capitalization.

Margin calls drive forced selling

Independent analyst Ambareesh Baliga pointed out that investors facing margin calls are being forced to liquidate positions, intensifying selling pressure across the sector. A margin call occurs when a trader’s leveraged position falls below the broker’s requirement, compelling them to sell assets to meet minimum capital requirements.

Outlook remains cautious

Despite the slump, JB Chemicals and Pharma bucked the trend, gaining 0.4 per cent. Experts suggest that while the near-term outlook remains weak, long-term fundamentals of the Indian pharma sector remain strong, with continued demand in global and domestic markets. However, investors should brace for volatility as geopolitical and macroeconomic uncertainties persist.