Tariff fear grips pharma sector as index tanks over 4.5%: IPCA, Laurus, Aurobindo, Lupin top losers

A day after rallying over 2%, the pharma sector declined over 4% during the early session on Friday, April 4, on tariff fears.

Market investors became cautious on the sector as US President Donald Trump said the pharma sector will face tariffs soon.

Speaking on the sidelines of the Air Force One event, Trump told reporters, "Pharma tariffs are going to come in at levels you have never seen before. We are looking at pharmaceuticals as a separate category. We will be announcing that sometime in the near future and not too distant future. It’s under review right now.”

The US President on April 3 imposed a 26% tariff on India but excluded some goods from the ambit of the reciprocal tariffs. The list includes copper, pharmaceuticals, semiconductors, lumber articles, gold, energy, and other certain minerals.

Trump’s hint on a fresh tariff on the sector led the Nifty Pharma index to decline 4.69% on Friday morning.

Shares of Dr.Reddy’s, Sun Pharma, Natco Pharma, Glenmark, and Alkem were also trading lower by over 3% on the 50-share index.

On the S&P SENSEX index, the BSE Healthcare sector also slipped 3.17%.  

According to a CNBC TV18 report, the Trump Administration will be investigating pharma and semiconductors under Section 232 of the Trade Expansion Act of 1962, which enables the US government, more so the President, to take necessary action to restrict the import of items that are deemed to threaten national security.

Global brokerage firm Jefferies recently, in a report, had said that if the US applies reciprocal tariffs, it will at best be 10% on imported Indian medicines to the US. It expects pharma companies will aim to pass on tariff increases to payors. If the costs aren’t passed onto the end patients, then the entire supply chain will have to partly absorb the impact. Key players in the US supply chain are retailers or distributors, formulation manufacturers and API or KSM suppliers to manufacturers.

The brokerage has also explained that given Zydus Lifesciences and Dr Reddy’s Laboratories have high US sales exposure with ~45% and 43% sales contribution, Jefferies believes they are at the highest risk among generics in our coverage.

Indian pharmaceutical companies supply a substantial proportion of drugs to US residents, with four out of ten of all prescriptions filled in the US in 2022 being supplied by Indian companies.