Pharma and IT stocks saw strong buying action on Wednesday, helping the Sensex gain 100 points. Analysts attributed the gains in pharma and IT stocks to weakness in rupee and defensive buying amid market volatility.
IT and pharma companies earn a major portion of their revenues from overseas markets. So a weakening in the rupee helps them boost their profits.
The BSE healthcare index ended 2.6 per cent higher to be the biggest sectoral gainer, with Sun Pharma, Lupin and Cipla leading the gains among frontline stocks. Sun Pharma shares advanced 4.2 per cent to Rs 927. Sun Pharma also received a boost after Bank of America Merrill Lynch upgraded the stock to 'buy' with a target price of Rs 1,070.
Lupin gained 2.5 per cent while Cipla edged up 1.8 per cent. Among other pharma stocks, FDC surged 15 per cent, Divis Lab gained 5.5 per cent while IPCA Laboratories, Glenmark Pharmaceuticals and Aurobindo Pharma advanced over 3 per cent.
The BSE IT index ended 0.72 per cent higher, with Wipro and HCL Tech rising nearly 2 per cent.
Earlier in the day, Sensex reversed a 110-point fall in early trade to rise over 190 points at its day's high amid a recovery in Chinese markets. The Nifty rose 8,520 at its day's high.
China's stocks markets initially fell over 5 per cent today before rising nearly 1.5 per cent. The Chinese markets had slumped over 6 per cent on Tuesday.
Gaurang Shah, assistant vice president of Geojit BNP Paribas Financial Services, said the volatility in China will affect global markets including India. He suggests investors shifting to IT and pharma sectors, which are seen as defensives and gain from rupee weakness.
Ajay Srivastava, MD of Dimensions Consulting, said pharma and IT stocks are poised for bigger gains as investors rush to the safety of these stocks amid market volatility.
Bank of America Merrill Lynch in a report said that rupee depreciation is a positive catalyst for pharma stocks. Falling crude prices will also lead to lower raw material (active pharmaceutical ingredient) cost for the pharma sector, it added.
The brokerage sees Cadila Healthcare, Aurobindo Pharma and Lupin as biggest beneficiaries of a weak rupee.
The rupee on Wednesday fell to 65.43/dollar at its day's low, before recovering to 65.14 in late trade. On Monday, the rupee had closed at 65.31. The rupee has fallen over 2 per cent since China devalued its yuan on August 11.
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