The pharmaceutical space remained the highlight of the current COVID year. Rising infections and panic has led to massive demand, also triggering the revival of the US generic market and intense competition amongst pharma players. Companies with strong manufacturing facilities and complex launches will drive earnings growth, said Jefferies in a report.

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The report explained that more sustainable growth will come from complex launches rather than shortage/price hike products. Dr Reddy's Labs and Cipla are our top picks, Jefferies said.

"Our coverage companies have gained share in API and finished dosage facilities servicing the US market since 2013. India's share of all Drug Master files/generic products for the US market is 38 percent/32 percent, the highest among all regions. Since capex-led revenue accretion will be a gradual process, we are flagging exuberance in API companies like Divi's Laboratories," said the brokerage.

When it comes to the Indian market, Jefferies feels that chronic therapies are working better than acute ones, given the growth and profits involved. Anemic volumes are declining while e-pharmacies may dent the ability of companies to take price hikes in chronic portfolios, added the report.

Hence, the brokerage likes IPCA Laboratories and Alkem Laboratories given their growth trajectory.

"Since January-2020, FY22 EPS estimates for our coverage have increased by 25 percent. While the Street has played catch-up, there is juice left in US generics. Our framework attempts to identify stocks offering low-risk growth at reasonable prices. We are projecting 25 percent/28 percent EPS CAGR for Dr Reddy's/Cipla over FY20-22E," concluded the brokerage.

(Edited by : Jomy)