‘Keep Mar­gin of Safety in Pharma Stocks’

The Economic Times - - Smart -

ETMar­kets.com: The $20-bil­lion In­dian phar­ma­ceu­ti­cal in­dus­try is go­ing through a phase of pro­longed crisis. The re­cent spate of reg­u­la­tory scru­tiny, warn­ing let­ters and Form 483s from the drug reg­u­la­tor of the big­gest ex­port mar­kets — US and Europe — has re­sulted in com­plete loss of faith for in­vestors.

What are Warn­ing Let­ters About?

An in­creas­ing num­ber of In­dian pharma firms have come un­der the k n i f e o f US Fo o d a n d Dr u g Ad­min­is­tra­tion (FDA) due to lack of trained staff and clean­li­ness at their man­u­fac­tur­ing units.

A warn­ing let­ter is a no­ti­fi­ca­tion by the USFDA to a com­pany for vi­o­lat­ing its rules and reg­u­la­tions. The BSE Health­care in­dex is down over 19% in the past one year, while in­di­vid­ual stocks have lost as much as 40% in the same pe­riod.

How to In­vest?

timesin­ter­net.in “In pharma, our stance is to buy af­ter the pain rather than be­fore the pain. We are look­ing at busi­nesses that go through huge price cor­rec­tions be­cause of warn­ing let­ters and where we see that as a non-fa­tal prob­lem. The re­cov­ery should come in a year or two,” said Ra­jeev Thakkar, CIO, Parag Parikh Fi­nan­cial Ad­vi­sory Ser­vices.

“The ba­sic prin­ci­ple of hav­ing a lot of mar­gin of safety needs to be dili­gently prac­tised when it comes to in­vest­ing in pharma,” said Sachin Shah of Emkay In­vest­ment Man­agers.

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