Dr Reddy’s, Torrent Pharma, Zydus Life: Pharma stocks to post resilient growth in Q2 earnings despite pricing headwinds

Pharma companies are expected to show a resilient performance in the upcoming July to September quarter (Q2) results for the financial year 2026-27, despite challenges like the consistent pricing pressure from the US generics market and the elevated logistical costs due to the geopolitical conflict.

Equity market investors are likely to focus on the medium-to-long term growth potential for pharma companies like Zydus Life, Sun Pharma, Dr Reddy’s, Sun Pharma, Torrent Pharma, among several others that are likely to benefit from domestic healthcare demand.

Market experts predict that while the export business to the United States is estimated to witness a decline on a year-on-year basis in the Q2 earnings due to lower sales, the domestic demand combined with the CDMO segment growth will position the companies to benefit as they strengthen their manufacturing capabilities.

Latest updates showed that the sector is also set to witness some additional tailwind in the upcoming period with the United States exempting certain speciality drugs imported from specific 20 countries, which include India, from its 100% import duty rate.

All eligible Indian drugmakers that qualify for the speciality medicines import duty exemption will witness significant relief, enjoying zero import duty in the United States, which still remains the primary export market for domestic pharmaceutical companies.

NSE data showed that the Nifty Pharma index has outperformed the benchmark NIFTY50, gaining 1.6%, while the broader index declined more than 6% in the last three months due to weak global cues for the Indian market.

What to expect from Q2 FY27 earnings?

Analysts from Antique Broking, an institutional brokerage firm, expect that the pharma sector is set to post earnings growth in the September quarter results, led by the domestic formulations segment, new launches and sustained outperformance in chronic therapies.

In contrast, the US segment is expected to decline 15% YoY largely due to lower drug sales and continued price pressure in the select generics market, which can be partially offset by the new launches from the companies.

In line with the outlook, Aparna Shanker, CIO-Equity, The Wealth Company Mutual Fund, also attributed the domestic segment to be the driving factor for Q2 earnings, while the export business remains under pressure.

“In pharmaceuticals, domestic formulations, chronic therapies, new product launches and improving demand in specialised segments are likely to support performance,” said Shanker. “Export-oriented businesses may continue to face some pressure from the normalisation of high-value generic opportunities in the US and pricing challenges.”

The Q2 results will also show the impact of the Indian rupee on pharma companies, as the domestic currency has witnessed significant downward pressure this year, losing around 6% of its value so far this year against the benchmark US dollar.

A weakening rate of the Indian rupee is beneficial for pharmaceutical companies with the US as a major market for drug imports. Hence, experts also predict that this will add support to the overall revenue growth in the period under review.

Opportunity for growth?

The capital markets expert, Aparna Shanker, also said that there is a large opportunity in the Indian pharma sector over the medium-to-long term, with domestic companies expanding capabilities across complex generics, speciality medicines and contract development and manufacturing organisations (CDMOs).

“The CDMO segment is particularly promising, as global pharmaceutical companies increasingly look to diversify supply chains and outsource development and manufacturing to capable partners. Indian companies are well positioned to benefit from this shift as they strengthen their manufacturing, research and compliance capabilities,” said Shanker.

Near-term headwinds

The profitability of the pharma companies is expected to remain under pressure as elevated costs, pricing pressure in the US market, and regulatory scrutiny remain key near-term headwinds in the upcoming period.

Analysts from Antique expect companies like Cipla, Dr Reddy’s, and Zydus Life, among others, to witness an overall margin contraction in the upcoming earnings, while Torrent Pharma has the potential for margin growth.

“Near-term challenges include pricing pressure in the US generics market, the normalisation of certain high-value product opportunities, regulatory scrutiny and the potential impact of elevated input and logistics costs,” said Shanker.

Key factors investors need to track

In the upcoming Q2 earnings, investors should look out beyond the regular quarterly numbers of revenue growth, focusing on the quality of the business and the sustainability potential ahead.

“In pharmaceuticals, key indicators include domestic formulation growth, the product pipeline, the contribution from complex generics and speciality products, and the pace of recovery in the US market,” said Aparna Shanker, CIO-Equity, The Wealth Company Mutual Fund.

Order inflows, customer additions, capacity utilisation, revenue visibility, and conversion of development projects into commercial manufacturing will be the key factors and indicators to watch out in the upcoming earnings of pharma companies.

“Companies that can move up the value chain and build deeper relationships with global innovators may be better positioned to capture long-term opportunities,” said Shanker.

Major pharma stocks in focus