Diagnostic stocks scramble for new growth in India as Covid gains halve

India’s listed clinical laboratories are looking for new sources of growth to fuel investor interest after seeing their massive coronavirus-fueled stock rallies more than halved in recent months.

Surging healthcare spending and demand for Covid tests led to multifold share-price gains for pathology firms globally during the pandemic. Those gains have started to fade as outbreaks ease and countries look to reopen, while concerns over higher interest rates have sparked a flight from risky investments including biotech.

The tumble in Indian lab stocks has accelerated since the start of the year after disappointing results. The nation’s longest-listed pathology company Thyrocare Technologies Ltd. posted lower revenue for the December quarter, hurt by reduced need for Covid-related tests, while larger peers Metropolis Healthcare Ltd. and Dr Lal PathLabs Ltd. missed analysts’ profit estimates.

“The outlook for laboratory stocks is muted,” said Kranthi Bathini, a strategist at Mumbai-based WealthMills Securities Pvt. “The companies now need to focus on growth from non-Covid streams.”

India has managed to control the recent outbreak, while testing capacity has been expanded significantly, Bathini noted. He said the companies have looked to expand through mergers and acquisitions, announcing deals when their stocks were at peak valuations.

Metropolis and Dr Lal both announced acquisitions of smaller players last year, looking to move into new fields. API Holdings Ltd., which owns the health-care brand PharmEasy and has announced plans to go public, last year acquired a two-thirds stake in Thyrocare from its founders.