The renewed buying in pharma stocks has come at a time when marketmen were expecting profit booking at these counters after gains were knocked off software stocks in the past few trading sessions. Pharma and software scrips are currently most-fancied by the market.

Marketmen still continue to remain bulish on pharma stocks. ``Pharma stocks have a long way to go. There is still some steam left,'' says Motilal Oswal, BSE member. There are a number of reasons for marketmen to be bullish on the sector. Amidst the recession in the economy, pharma is one of the few industries which is almost recession proof. Thus, these stocks provide an excellent hedge against the recession. As for the future, the industry is expected to show a stable growth rate for the next fewyears. According to a dealer, ``There is significant potential for demand growth in India on account of low level of market penetration and low per capita income.''

Despite the recent economic slowdown, the Indian pharmaceutical industry has managed a double digit growth rate, he added. Agrees an analyst with a leading research outfit, ``we expect the industry to grow by alteast CAGR 27-28 per cent for next 8-10 years.'' The buy-back euphoria has also lent some flavour to the current rally in the pharma companies. Few of them have already taken approval for buy-back. (see Box). Another reason is that the deadline for the product patent regime is drawing closer. The punters are encashing on this opportunity to hoard stocks of front-runner pharma companies. With product patent, the multinationals pharma companies will be in a much better position to introduce new molecules due to R&D support from their parents. According to an analyst, ``as we will be soon linked to the global economy, the recent shift tothe pharma stocks is a mere exercise of realignment, as globally the pharma stocks enjoy much higher valuations than any other industry.''

Citing an example, he added that internationally, Glaxo enjoys valuation of US $ 80 billion and has a return on capital employed (ROCE) ratio of 58 per cent. On the other hand, Unilever enjoys a valuation of US $ 65 billion as its ROCE is lower at 23 per cent. However, in India, Unilever subsidiary HLL enjoys a much better valuation than Galxo. Besides, speculation that the government would give legal status to the Over the Counter (OTC) drugs has also fuelled the rally in multinational pharma stocks. The move is expected to increase OTC pharmaceutical business from Rs 1,000 crore at present to Rs 2,500 crore in the next three years. Worldwide, the business for OTC is estimated to be $44.8 billion and enjoys market share of 28 per cent in the US, 15 per cent in Japan, and 20 per cent in the European Union.

According to a BSE broker, ``There is so much happeninginternationally in the pharma industry that now and then, we keep hearing some merger or acquisition to create the world's strongest pharma company. Thus, in sympathy with the Indian subsidiaries, other pharma stocks go up on Indian bourses.''