Pharma Sector in Deep Pain; Makes New Low in 2023!

Despite some strength seen in the broader markets with the Nifty 50 index gaining 0.32% and reclaiming the 18,000 mark, the pharma sector is going through a rough time. The Nifty Pharma index tanked over 1% in the opening session to trade at 12,034, by 10:34 AM IST which is the lowest level for the year so far. 

One of the index heavyweights - Cipla Limited (NS: CIPL ) which holds a weightage of around 12.8%, making it the third biggest index constituent is the primary reason for the plunge in the entire pharma space. The USFDA (United States Food and Drug Administration) issued form 483 with a total of 8 observations after finding non-compliance in the company’s Pithampur manufacturing facility.

After the company made this information public via its exchange filing, the share price of Cipla tanked over 7% to hit the day’s low of INR 956.85 which put a serious dent in the entire pharma space. The company has a market capitalization of INR 82,792 crores and trades at a P/E ratio of 32.9 with a dividend yield of 0.49%.

The stock was falling consistently since it topped out in November 2022, after marking an all-time high of INR 1,185.25 amid a decent outperformance over many peers, some of which are currently trading around their respective 52-week lows. As the profit booking started, the stock has been falling for the 4th straight month with the last three (including February 2023 so far) recording a fall of over 5% each. 

Today’s 7% plunge below the key support level of INR 1,000 has further increased the possibility of a continued downtrend. Although the current RSI (daily, 14) reading is around 28.5, which is an oversold one, the sharp selloff might take the stock to the next support of around INR 900 but the possibility of a counter-trend rally should not be ruled out. 

As the previous support was INR 1,000, this has now turned a major resistance level which is a sweet spot for bears looking to initiate their short positions. But as there is a decent gap as well above this resistance amid today’s fall therefore a bounceback could extend further, but the overall trend should be deemed negative, at least till the next support level.