Return Of Pharma Over June-July? Recent History Has Interesting Data

I have tracked market fundamentals all my life. Rarely do I indulge in decision-making or theorising based on charts or patterns. It is a great way to look at markets, but it's not how I approach my analysis of the markets. However, I felt the desire to try and be a contrarian in pharmaceuticals. And historical trends and seasonality patterns allow me to write this small piece.

A lot has been written about pharma and its weakening fundamentals. The stocks have had a terrible run over the last few months, and May was not been kind either, with the Nifty Pharma Index falling almost 11 percent last month. There is a likelihood that pharma stocks may have a poor run in June as well. The signs of stress on pricing have been evident in the quarterly earnings reported recently, and the management commentary from some of the large companies has not been encouraging either. However, if past patterns are to be believed, the months of June and July have been pretty rewarding for the NSE Nifty Pharma Index and select pharma stocks.

And the month of June has seen a red tick in only two of the last six years, with the highest loss being a 2.47 percent downtick in June 2015.

Some of the key pharma stocks like Lupin Ltd., Dr. Reddy's Laboratories Ltd., Divis Laboratories Ltd., Biocon Ltd., and Natco Pharma Ltd. have all had great runs in the month of June for most years since 2011. Biocon has not had a single red tick in the month of June in the last six years. Others like Divis and Natco are not too far behind, and larger companies like Lupin have clocked in a fantastic June for each of the last four years.

Also Read: Pharma Slide: Valuations Versus Growth Risks

Is this a poor way of picking stocks – YES, ABSOLUTELY! Is this article trying to give an insight into whether to buy pharma stocks or avoid them – NO! This article is merely trying to bring the attention of the reader that June and July have traditionally been a good month for the pharma stocks, albeit selectively. Dare I say, if this June or July are no different, that might turn out to be a confirmation of the pattern. Traders can thank me if it does happen.

Niraj Shah is Markets Editor at BloombergQuint.