Pharma Stocks Outlook for the week – 03 to 07.10.2016 May rebound next week; Aurobino Pharma top pick

Pharma Stocks Outlook for the week – 03 to 07.10.2016
May rebound next week; Aurobino Pharma top pick )

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Despite challenges over the short term on both domestic and international fronts, stocks of most
pharmaceutical companies are likely to rebound next week as investors continue to be bullish over
the sector's long-term prospects. Favourable valuation of large-caps following a near 10% decline in
the Nifty Pharma index in the last one year on regulatory issues is another reason aiding investor
sentiment. Aurobindo Pharma is the preferred pick of most dealers due to expectation of strong
earnings from the company, which has one of the largest pipeline of generic drugs that are awaiting
US Food and Drug Administration's approval. For the next week, the Hyderabad-based company's
stock is expected to rise further. It would be a lifetime high for a stock that was hovering around just
100 rupees three years ago. The stock trades at a 30% discount to the pharmaceutical sector. We
expect the current 30% discount to narrow as the company delivers strong growth and reducing

The largest company in the sector Sun Pharmaceutical Industries is expected to rebound from this
week's losses. Resolution of its regulatory issues surrounding its plant at Halol is a key trigger for the
stock. The US Food and Drug Administration had issued a warning letter to the plant for noncompliance with good manufacturing practices. The analyst remains uncertain about when most
pharmaceutical companies' regulatory issues will be resolved. Yesterday, Cipla declined 4% after
company said the US Food and Drug Administration issued a Form 483 with four observations related to deviation from good manufacturing practices across three units at its Goa facility. Cipla was the worst hit in the sector this week, and is likely to correct further next week.

Next week, the broad market will also be in focus as market participants focus next week on account
of Reserve Bank of India's monetary policy. Investors will also monitor government officials and

ministers' comments given the on going geopolitical tensions between India and Pakistan.