Pharma stocks has been worst performing since 2015 and which is the reason why investors are now shifting their investment out of Pharma , but i would say STOP off loading! Pharma index have tested patience of investors. We could feel the pinch because almost all front line pharma stocks has corrected atleast 50% from 2015 high’s. But if we talk technically, 50% correction is the time when one should start looking back for a long entry point.
Rupee appreciation was one of the fundamental attribute for pharma stocks under-performing. But now time is going to change around for this sector. Companies like Sun pharma and Lupin had been taking over many crucial pharma companies overseas and at expanding pace. Now its to time harvest pharma stocks for the seeds they have sown in last two years are about to give fruits and we must get them before they are ripped in markets. Almost all pharma companies have started getting USFDA approve for their facilities India which were previously banned. It was believed that Trump would charge high tax on foreign good imports which was the reason for last lag of melt down in pharma stocks but i dont think in such a global trade economy its possible to avoid better products to be imported in any country. If at all we assume that any such step is taken, Stocks like Lupin and Sun pharma can be still bought as they own many US pharma companies which wouldnt be impacted by any such step. So basic Qualitative outlook seems to be positive at this team while quantitative analysis would have to be done on company to company basis.
Now lets study some charts for Pharma….I have considered NSE Pharma index Weekly time frame for having a common consensus for the sector. If you could notice in the chart above, index has fallen down from almost 12000 to as low as 8400 in 2 years. But technical it took support at the previous rally resistance . The Horizontal line where it took support had been a strong resistance before it broke out for life highs 5 years ago. As one the simple guide state’s: “Support and resistance reverse their role after they have been taken away” and this is the perfect situation. Take second instance where support since 2014 which was at 10000 , as marked horizontally, is currently acting as a strong resistance. Therefore we could notice that as per Friday’s closing , pharma index is trading between strong levels of 8400-10000 which are acting as support and resistance. Such situations are generally considered to be cautious time but if i consider other factors it gives me strong signs of accumulating pharma stocks. Consider channel marked on the chart where pharma index has been travelling. It has a strong resistance now exactly at 10000 which is also the resistance on horizontal line. So 10000 is surely a confirmation for Pharma reversal and a safe investor should keep some liquidity in his portfolio to invest as soon as it closes above 10000. If you want to get early benefits, start investing as a SIP in Pharma themed Mutual funds as soon as tomorrow. But if u are risk taker, you should straight away start buying good pharma stocks as look at the RSI which has given a positive divergence on Weekly charts. Even recent weeks volume has been more than average volumes as its clear visible which means stocks are accumulated.
To sum up when markets are looking volatile and uncertain to sustain at high levels, we should keep a watch on Pharma stocks which could outperform and give us best returns from here with a view of 2-3 years of investment. Before investing on my idea do read disclaimer and also consult your Financial analyst.