Defensive sectors in focus again on rising Covid cases

Mumbai: The risk-off mood in the stock market is prompting investors to shuffle their bets in favour of the so-called defensive sectors such as pharmaceuticals and to some extent, information technology.

In the week gone by, various pharma and select IT stocks managed to dodge the sell-off in the market after government health authorities advised people to wear masks in crowded places amid rising cases of illnesses due to new Covid-19 variants in China, Brazil, the US and South Korea. The BSE Healthcare index declined 0.2% and the IT index was down 0.1% on Thursday even as recent winners such as mid- and small-cap stocks suffered from deeper losses. The small-cap index slumped by 1.8% and the mid-cap index fell by 0.8%. The Sensex and Nifty ended almost 0.4% lower.

The current shift towards pharma stocks is technical in nature and not a structural one, said Pankaj Pandey, head of research at ICICI Direct.

"Pharma stocks have come into focus lately given the developments surrounding the spike in Covid infections, but one needs to be selective when investing and look for companies that have a strong domestic play," he said.

Lupin made an advancement for the second day and closed with 2.3% gains on Thursday after rising more than 4% on Wednesday. Sun Pharma advanced for the third straight day Thursday although gains were limited. Glenmark Pharma declined by 1% on Thursday after rising more than 7% in the previous trading session. Trimming their bearish bets, traders have added bullish calls on their stock futures.

The recent resurgence in Covid infections - against a backdrop of tightening monetary policies and hawkish commentaries by global central banks that could potentially trigger a global recession has dragged India's benchmark indices down by nearly 5% after hitting their all-time highs on December 1.

Selling pressure intensified after the Bank of Japan allowed a gradual normalisation of its ultra-accommodative monetary policy while central banks in the US and Europe called for further rate hikes to control inflation despite the risks of putting the global economy into a possible recession.

"Last week, it was FMCG. This week we saw some shift towards pharma stocks," said Viraj Vyas, derivatives and technical analyst-institutional equities at Ashika Group. "Perhaps people are looking for solace in defensive names given the uncertainty surrounding the macroeconomic situation and resurgence in Covid-19 infections, but it is too early to call out a definite trend."

Some pharma companies have witnessed an increase in delivery volumes. Shares of Zydus Lifesciences advanced 0.4% on Thursday, and have risen nearly 4% in the last sessions. It has also seen a nearly 10-fold increase from its one-month average trading volume to 2.1 million shares. The rise in trading has also resulted in an increase in share deliveries.

Similarly, shares of Ipca Laboratories, Divi's Laboratories and Cipla have also seen a spike in trading volumes as well as deliveries.

"Many stocks in the pharma sector have been under-owned and their valuations came down to reasonable levels recently," said Alok Ranjan, chief investment officer at IDBI Mutual Fund. He did not see that as an immediate trigger for investors to shift their portfolios or positions in a major way. "A minor fall in the markets was natural given the sharp one-way rally recently. While there has been some buying in the pharma space, we do not see that to be a long-lasting trend and post this correction, we expect the market action to shift back to sectors like BFSI, capital goods and auto," said Ranjan.