Pharma stocks have been in focus as the resurgence of COVID-19 in India has increased the demand for coronavirus drugs and vaccines.

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In the last one month, the pharma index has outperformed frontline indices. The Nifty Pharma rallied over 14 percent in this period as against a 3.5 percent fall in Nifty.

The Nifty Pharma had ended 2020 with a 61 percent rise, outpacing Nifty’s 15 percent gain. However, in January and February, it fell 6 percent and 2 percent respectively as the fresh COVID cases curve seemed flattened.

This month so far, the index has gained around 9 percent, while the Nifty is down about 3.5 percent.

Analysts expect pharma stocks to continue rising and outperform Nifty over the medium term.

All constituents of the pharma index have also been in the green in the last one month since the second wave started appearing worse than the first one. Cadila Health is up the most, around 34 percent while Cipla and Dr Reddy's rose over 20 percent each.

The government allowing Sputnik V as an emergency vaccine in India is a positive for Dr Reddy’s Laboratories. DRL has tied up with Russia’s RDIF to collaborate on vaccine trials and distribution in India.

Cadila, Dr Reddy's, Cipla, and Syngene were also in focus after they cut prices for Remdesivir by 25-65 percent.

Among other stocks, Aurobindo Pharma, Divi's Labs, Sun Pharma, Alkem Labs, and Lupin also rose 6-18 percent.

“Considering the further increase in COVID-19 cases and COVID-19 related diagnostic tests, we believe the revenue and earnings upside from related drugs, vaccines and diagnostic tests would continue in FY22. Cipla, Cadila, Dr Reddy’s, etc. are the key beneficiaries for COVID-19 drugs/vaccines. Further, the requirement of test reports for travelling would create this an additional revenue driver for diagnostic companies," ICICI Securities said in a note.

It added that the pandemic may continue to fuel capacity expansion for intermediates/active pharmaceutical ingredients (APIs) as India may emerge as an alternative source for raw materials.

Axis Capital said that it expects 8-10 percent growth for Indian pharma market in FY22 but if COVID situation persists we could see a muted trend – similar to FY21. Vaccines will add option value for Dr Reddy's and Cadila, it said.