Which Indian pharma stocks will outperform bank deposits?

Subscribe to enjoy similar stories. No matter how high the inflation is, their demand is inelastic. No matter how slow the current profit growth is, these companies spend on research and development (R&D) for future growth.

No matter how stiff the competition is, their patents protect them. No matter how weak the economy is, these companies continue to receive government support. Pharma companies truly deserve to be called 'defensive stocks' for these reasons and more.

Going by the same logic, pharma stocks should be resilient and consistent in delivering gains year after year. However, among large Indian pharma stocks, barely any managed to fetch returns significantly higher than bank deposits on an annual basis over the past decade. This is certainly not a comparison of the safety of pharma stocks versus bank deposits.

The latter is an asset class that offers both surety of capital and surety of returns. Pharma stocks, on the other hand, are supposed to be resilient across market cycles, fetching reasonable risk-adjusted returns. But thanks to regulatory bottlenecks, constant government interventions, risk of price wars against generic versions and low success in R&D, the companies often fail to fetch optimum valuations over many years.

Nevertheless, in a world with a growing aged population, the pharma sector remains one that cannot be ignored by governments and investors. In fact, here are a few reasons why a handful of carefully selected pharma stocks must stay on your watchlist: Covid-19 laid bare the shortcomings of globalization by disrupting the flow of vaccines to certain geographies. This caused economies like the US and the European Union to localize pharmaceutical production to enhance supply chain control.