The key concerns around price increase for the generic medicines in the US, drug shortages, rationalization from low-margin products, and supply chain disruption are temporarily alleviated, for now. However, pharmaceutical products may become subject to duties under future actions pursuant to the Trade Expansion Act of 1962.
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The US government under Trump 2.0 has announced reciprocal tariffs across countries, including ~26% tariff on imports from India. However, pharmaceutical products were exempted from the first round of tariffs. This is a positive for the sector, which has been under a tariff overhang since the last two-three months.
The key concerns around price increase for the generic medicines in the US, drug shortages, rationalization from low-margin products, and supply chain disruption are temporarily alleviated, for now. However, pharmaceutical products may become subject to duties under future actions pursuant to the Trade Expansion Act of 1962.
Indian generics account for ~40% of drug imports in the US (~$8 billion in FY24; over FY15-24, US exports saw 8% CAGR) and Indian companies like Zydus, Dr. Reddy's, Lupin, Aurobindo, and Sun Pharma are heavily reliant on the US market – with US sales contributing 30-50% of total sales.
We note the Indian pharma index has already reacted to the tariff risks as it has been down ~10% in the last three months.
This no-tariff-impact after the first round will be a positive for the entire pharma sector. Our top picks are Sun Pharma, Lupin, and domestic focused companies like Torrent Pharma, Mankind, IPCA, and Eris Life (no presence in the US generics market).
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