The Nifty Pharma Index was the top sectoral performer in 2020 as rising demand for certain drugs during the Covid-19 pandemic sent healthcare stocks higher. BofA Securities recommends sticking to select drugmakers in the new year.
The 10-stock gauge ended 2020 with more than 60% gain—its best annual return since 2003. That, according to BofA Securities, came as margin improved on continued sales with improved product mix, lower costs and minimal headwinds from price erosion and U.S. FDA issues.
The research firm forecasts 36% of the Indian population to be vaccinated in 2021. It expects stocks like Cadila Healthcare Ltd., Aurobindo Pharma Ltd. and Dr. Reddy's Laboratories Ltd. to benefit from the potential vaccine opportunity. BofA Securities is now only “marginally overweight” on the healthcare sector.
It expects two key sector headwinds — price erosion and regulatory risks — to remain low in 2021 as well. “Though countries are trying to vaccinate all and open international travel, we think the process will take time and headwinds can remain low for the large part of this year,” Girish Bakhru of BofA Securities said in a note. “While daily [Covid-19] cases are declining, use of Remdisivir should remain high as concerns about a new strain of virus with high severity are rising.”
BofA Securities also expects expenses for companies to remain in control, given fewer domestic field activity and travel, slower progression of clinical trials and other R&D activities.
Also, there are patent expiries worth $45 billion over the next three years where drugmakers have participation, the note said. “Of the nearly 70 drugs, we see 35 expiries as good for the sector on timely approval, launch and market share execution,” BofA Securities said, adding generics market worth $20 billion is still attractive with products such as Copaxone (multiple sclerosis), Vascepa (reduce the risk of heart attack, stroke), etc.
BofA Securities' Top Picks For 2021
