Pharmaceuticals Remain Top Performer in US Market, Trading Above FY26 Average Valuation

Pharmaceuticals Sector Shines in India's Stock Market

India's pharmaceuticals sector is the only major large-cap segment trading above its FY26 average valuation, supported by resilient demand in the US generics market and steady growth in domestic formulations. This is in stark contrast to sectors such as IT, FMCG, banks, and real estate, which continue to trade below their historical averages.

According to a report by JM Financial Institutional Securities, the NSE Pharma index is trading at 31.5x one-year forward earnings, higher than its FY26 average valuation of 28.3x and above the FY25 average of 29x.

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The broader market rebounded in April after a weak March, with the Nifty 50 one-year forward price-to-earnings ratio rising to 18.6x from 17.4x in March 2026, though it remained below its FY26 average of 20.4x. Midcap and smallcap valuations also improved to 27.5x and 22.3x respectively from 24.6x and 20.2x in the previous month.

The recovery was broad-based across sectors, with FMCG, automobiles, and real estate witnessing the sharpest valuation rebound during April. Auto valuations in particular climbed to 23.4x, above both FY26 and FY25 averages, while metals continued to trade below historical norms, reflecting investor caution around the commodity cycle.

Pharmaceutical valuations continue to command a premium due to strong earnings visibility, driven by healthy traction in the US generics business, improving product pipelines, and sustained domestic demand. Domestic formulations growth has remained resilient on the back of chronic therapies and higher healthcare spending, while export-oriented drugmakers have continued to benefit from stable pricing and demand recovery in the US market.

In contrast, IT sector valuations have de-rated sharply amid concerns over slower discretionary spending, macroeconomic uncertainty in key overseas markets, and delayed decision-making by global clients. FMCG companies, despite a rebound in April, continue to trade below historical averages due to concerns around urban demand moderation and margin pressures. Banking valuations also remain subdued due to concerns around deposit growth and net interest margin compression.

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Real estate stocks, although recovering from March lows, continue to trade at a discount to long-term averages amid moderation in property sales growth after a strong multi-year upcycle.

The report concludes that while broader market valuations have improved after the recent correction, investors remain selective and continue to favour sectors with stronger earnings visibility and relatively defensive growth characteristics, such as pharmaceuticals.