The doom and gloom in the wake of the coronavirus pandemic is burnishing the stock appeal of Indian drugmakers and those that are tied to consumer wallets.
The stockpiling of medicine in a country of 1.3 billion people and the rising focus on affordable health care globally will boost the shares of the nation's pharmaceutical companies, while the government's support programs for rural India and the pent-up demand due to the lockdown is positive for makers of consumer goods, according to fund managers at Max Life Insurance Co., Star Health and Allied Insurance Co. and BNP Paribas Asset Management India.
The two sectors are seen as shelters at a time when the news about India couldn't have been worse, though a glimmer of hope is emerging as the world's strictest lockdown measures are being eased. The epicenter of Covid-19 infections in Asia has shifted to the South Asian nation from China, and India's $277 billion virus-relief package has failed to deliver an immediate boost to the economy. Meanwhile, Prime Minister Narendra Modi has allowed domestic flights to resume.
“People want to stay healthy and eat right during a Covid-19 kind of crisis,” said Aneesh Srivastava, chief investment officer at Star Health. The “front-line companies in pharma and consumer spending are likely to see stable growth.”
Srivastava is also looking to buy shares of market leaders among consumer-focused lenders and the beneficiaries of discretionary spending like the automobile sector.
Mihir Vora, chief investment officer at Max Life, is bullish on Indian drugmakers for a gamut of reasons -- the industry's underperformance of the past four years, their plants getting approvals by international regulators, robust demand from patients and PM Modi's plan to become self-reliant in key industries.
“The domestic demand and international demand will likely remain high due to Covid-led complications,” he said.
Pharmaceuticals became the most overweight sector at local mutual funds in April, according to data compiled by Emkay Global Financial Services Ltd. The S&P BSE health-care index has slightly advanced in May after surging 26% in April, its best month ever.
Brijesh Ved, head of equities at BNP Paribas, said the domestic pharma market has seen stable growth amid the coronavirus outbreak, while exports to the U.S. have gained pace, thanks to plant and drug approvals by the Food and Drug Administration.
“India will continue to enhance its role in reducing pharma pricing in the USA” and the stocks are re-pricing this long-term potential, he added.
While the government's virus-relief package has failed to provide immediate stimulus to the economy, its welfare programs for unemployed people and farmers in rural India will be positive for consumption, according to Max Life's Vora.
“FMCG demand will rebound the fastest, followed by some segments of consumer discretionary like automobiles,” he said.
BNP Paribas's Ved said the partial easing of restrictions during the extended nationwide lockdown can help e-commerce, logistics and essential consumption. “Stimulus so far has been focused on the poor and providing them with basic food,” he said.
Nitin Bhasin, head of equities research at Ambit Capital Pvt. sees food and dairy products, consumer essentials and staples as sectors that can experience “higher utilization levels.” “People will keep ordering groceries,” he said.
Shares of two-wheeler makers like Hero MotoCorp Ltd. can also rebound, according to Bhasin. People who generally use public transportation may now prefer to buy motorcycles or scooters because of the spreading virus, he said.
The S&P BSE Fast Moving Consumer Goods Index has fallen 9.3% this year while the sub-index for the consumer discretionary stocks has dropped 26%.
Amar Singh, head of advisory at Angel Broking Ltd., said that “digitalization is something that is there to stay” and that's getting reflected in how telecom stocks such as Bharti Airtel Ltd. and Reliance Industries Ltd., India's biggest company by market value, are making a shift from petrochemical to technology.
“In India, we don't have big tech companies on the index,' Singh said. “But it is a huge opportunity in telecom space. Ultimately, everything has to be data driven.”
The S&P BSE Telecom Index has gained 17% this year, the most among the 19 sub-gauges compiled by BSE Ltd., as the lockdown has led to an increase in data consumption. People will start spending a lot more time consuming media, and telecom companies should therefore see an increase in average revenue per user, Ambit Capital's Bhasin estimates.