Indian Exports: Contrasting Trends in Two Key Sectors

Indian IT Stocks Struggle Amid AI Disruption Concerns

Nifty IT Index Down 22% in Last One Year

The Indian IT sector has faced significant headwinds in recent times, with concerns surrounding AI-related disruption stoking selling in IT stocks. Several Indian brokers have also pared their valuation targets for IT stocks. Despite this, investors are hedging their bets, awaiting the actual impact of new technologies.

Pharma Sector Outperforms IT

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In contrast, the pharma sector has reported steady financial performance in the December quarter, with latest analyst estimates indicating decent growth in earnings of finished dosage drug manufacturers in FY27 and FY28. India Ratings is projecting a revenue growth of around 10% for the pharma sector in FY27. The domestic market, a large business segment of Indian pharma, is growing steadily, while recent quarterly results indicate the benefit of rupee depreciation for pharma.

Indian Pharma Companies Adapt to Changing Market

Indian pharma companies have tactically increased exposure to high-value and difficult-to-manufacture complex generic drugs over the last several years. These products face less competition compared to plain vanilla generics and offer better prices. Sun Pharma has even built a large specialty drug business. As per Nomura, new drug filings with the US FDA dropped to their lowest levels in two decades in FY25 ending September, indicating the focused approach of Indian pharma companies.

Notable Improvement in Pharma Exports

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According to India Ratings and Research, product-specific opportunities helped Indian pharma companies grow their US revenues faster between FY23-25 compared to FY18-22. The net result is a notable improvement in pharma exports in the past two fiscal years.

Investment Insights

The pharma sector's ability to adapt to changing market conditions and its focus on high-value products have helped it outperform the IT sector. Indian pharma companies can serve as a model for other industries looking to navigate the challenges posed by innovation and competition.