Risk-reward ratio in favour of investors in pharma space, says Nirmal Bang Institutional Equities

The risk-reward ratio in the pharmaceutical space is probably in investors' favour now despite the USFDA observations and warning letters, says Rahul Arora, CEO of Nirmal Bang Institutional Equities.

“If you are a brave person and you want to bet and it would require a really brave person to bet, you could probably look at some pharmaceutical stocks. I know it is probably not the best time to say it because USFDA has gone after pretty much everyone from Torrent Pharma to Glenmark. I don’t know how much of it is in the price, but a brave man betting right now, I think the risk reward is probably in your favour because I think the opportunity growth is still there compared to IT where the opportunity growth is shrinking. So the valuation comfort is a little more in pharmaceutical sector versus IT but it would require some amount of bravado to get in,” he observed.

Talking about the fundamentals of the market, Arora says the global concerns over the US-China trade dispute is sort of abated. "I don’t think it has died down. But the rally that we saw post corporate tax rate cut, which basically took us to somewhere around 11,400-11,500, is probably a one-time reset that is going to happen on earnings per share. The corporates are going to take benefit from it this year and then you probably adjust your profit numbers for FY21 and FY22 on the basis of what you have done this year," Arora noted.