The BSE Healthcare index has plunged 6 per cent in past five sessions and 13 per cent in 2025 so far amid fears that the US administration under the President Donald trump may impose 10 per cent tariff on drug imports, hurting domestic pharma players.
If one goes by Elara Securities, the selloff is not justified and that buying opportunities may son emerge.
"India's pharmaceuticals stocks have seen a broad sell-off recently that has accelerated in recent days on concerns around the US tariff war initiated by President Donald Trump that could make pharma exports costlier for US consumers. Our analysis shows the sell-off is not justified as the likelihood of tariff on pharma imports is low," Elara said.
The brokerage believes that even if it were imposed, the impact would be low. It sees the weakness as an opportunity to buy into the pharma space as the domestic brokerage expects robust earnings growth ahead at reasonable valuation.
Natco Pharma plunged 33 per cent in the one week period. Laurus Labs (down 15 per cent), Glenmark Pharma (down 14 per cent), Granules India (down 12 per cent), Lupin (down 10.5 per cent) and Alken Labs (down 9.7 per cent) have seen sharp declines in the past one week. Biocon, Cadila Healthcare, Torrent Pharma and Aurobindo Pharma fell 5-10 per cent. Big names such as Sun Pharma, Dr Reddy's Labs and Cipla Ltd declined up to 3.5 per cent for the week.
As per data from the World Trade Organization (WTO), India's pharma exports to the US in 2023 were valued at $7.6 billion and India's pharma imports from the US were valued at $600 million. India charges a 10 per cent tariff on pharma imports from the US while the US does not charge any tariff on pharma imports from India
Elara said India's pharma exports to the US consists mostly of generic pharmaceuticals products and India is a major supplier of generics to the US.
Imposing a 10 per cent tariff on India's products will likely set off a major price increase cycle in the US generics pharma market.
"Given concerns on rising healthcare cost in the US, it will not be easy for the US government to take such a decision We note the Fact Sheet published by the White House on February 13 did not allude to the pharmaceuticals sector despite it being one of the largest categories of exports from India to the US," Elara said.
Instead, the US government singled out India's agricultural goods and motorcycles saying: "the US average applied Most Favored Nation (MFN) tariff on agricultural, goods is 5 per cent but India's average applied MFN tariff is 39 per cent. India also charges a 100 per cent tariff on US motorcycles while we only charge a 2.4 per cent tariff.
"In the event the US government decides not to differentiate across categories based on US needs, it will not be difficult for India's government to adjust its tariffs. India's pharma imports from the US is a mere $500 million as on CY23; if India's government reduces the tariff on this from 10 per cent to 0 per cent, revenue forgone is not material," Elara said.
The pharma products imported from the US will mostly be patented drugs
Elara said it is not easy to assess implications in the event tariffs actually come through, given the moving parts involved. However, a situation where India's companies losing out in the US generics market is highly unlikely, as more than 90 per cent of generic medications in the US are imported or import-dependent. Apart from India, China, Mexico, the EU and Canada are important sources of generic pharma products sold in the US. Tariff on India's generic pharma products will also mean simultaneous tariffs on imports from other major countries, Elara said.
"Other major countries are already in a trade war with the US; India's overall political situation seems far better Thus, tariff on imports from India on generic medicines would lead to price escalation in the US pharma market and India's companies, in general, will be able to pass on additional tariffs to customers," Elara said.
Over time, it is likely pharma manufacturing will move away in part from India and other low-cost destinations to the US India's companies will be part of that process as they can invest in plants in that geography. Most Indian generic pharma players already have some manufacturing pr