Covid scare a shot in the arm for healthcare | Economic Times

The healthcare sector, including pharma, hospitals and diagnostics, has managed to not only ride out the disruption caused by the pandemic but also gain from it. The ET Pharma Index, for instance, has advanced 52% in the past year — its best run since 2015 with most stocks hitting a record high in the past few months.The success stories of businesses in the sector are likely to continue to play out over the next couple of years. The drivers are multiple: Pharma companies would benefit from selling Covid vaccines and a pickup in non-Covid acute drug portfolio; diagnostic firms from the increased thrust on testing and evidence-based treatment; hospitals from recovery in non-Covid business and resumption of medical tourism, and insurance companies from the surge in public awareness about the need for health covers.Among pharma companies, Dr Reddy's Labs is one of the most promising (also slated to benefit from the sale of the vaccine). Sun Pharma, with its investments in specialty drugs, is likely to be a high risk, high return proposition — based on the ramp-up of the new business segment. Aurobindo Pharma, with its lower-than-peer valuations, is also attractive. Companies manufacturing active pharmaceutical ingredients (APIs) such as Divi's Labs, Laurus Labs and Gland Pharma are expected to do well as India increases focus on China-proofing the raw material requirements of the sector. With investment interest having revived in the sector, consolidation through M&A is likely to boost the prospects of the listed small and medium players in the pharma sector.There are likely challenges, too. The lockdowns and ban on international travel have delayed USFDA inspections of plants and clinical trials of products under R&D. This may affect the product pipelines. Securing supplies from China and reasonable pricing of the Chinese input materials may emerge as a recurring worry depending on the Indo-China geopolitical relations.Apollo Hospitals, the market leader among private hospital chains, is expected to do well. Along with it, the low-cost model of Narayana Hrudayalaya is gaining traction. Based on the resolution of its legal issues, Fortis Healthcare may emerge as yet another promising bet among hospital stocks.Diagnostic firms Dr Lal Path Labs and Metropolis Healthcare are expected to do well as they would see recovery in non-Covid and preventive testing. Besides, RT-PCR and antigen testing to detect Covid could continue to garner additional revenue for one more year.