Health & Pharma Stocks to BUY After Correction: Jefferies & Motilal Oswal name top picks - List

Healthcare stocks came under pressure on Monday, with the Nifty Healthcare index falling 1 per cent as several pharma and hospital stocks traded lower.

KIMS, Abbott India, Glenmark Pharma, Max Healthcare and Mankind Pharma were among the major losers, while IPCA Laboratories and Gland Pharma were among the gainers.

The fall comes despite expectations of better earnings growth for the healthcare sector in the September quarter. Motilal Oswal Financial Services expects its healthcare coverage universe to report 13 per cent year-on-year growth in revenue and EBITDA in Q2FY27.

At the same time, regulatory concerns around hospital consumables and oncology drug pricing have triggered a sharp correction in hospital stocks.

Motilal Oswal expects healthcare companies to report an improvement in earnings growth in the September quarter, supported by domestic formulations and hospital businesses.

Aggregate revenue and EBITDA for the brokerage's healthcare coverage universe are estimated to rise around 13 per cent year-on-year in Q2FY27. However, profit after tax growth is expected to be lower at 5.8 per cent due to higher finance costs and increased depreciation following acquisitions.

Domestic formulations are expected to remain a key support for the sector. The brokerage estimates domestic formulation sales of its coverage companies to rise 20.4 per cent year-on-year to Rs 31,200 crore in Q2FY27. Excluding GNP and Torrent Pharma, growth is estimated at 13.6 per cent.

The Indian pharmaceutical market is expected to continue its double-digit growth trend, supported by recovery in acute therapies and continued strength in chronic therapies. Cardiac, anti-diabetic and vitamins, minerals and nutrients categories continued to outperform the overall market in MAT August 2026.

While domestic business is expected to support earnings, the US generics business remains a concern for several pharmaceutical companies.

Motilal Oswal expects US revenue for its coverage universe to decline 6.9 per cent year-on-year to USD 2.3 billion in Q2FY27. Dr Reddy's Laboratories and Cipla are expected to see US sales decline 35 per cent and 27 per cent, respectively. The brokerage attributed the pressure to intensifying competition in niche products, including generic Revlimid.

Sun Pharma's US sales are also expected to decline 12 per cent, mainly due to lower generic Lenalidomide sales and increased competition in select products. Growth in innovative medicines is expected to partly offset this pressure.

However, the US market outlook is not negative for the entire sector. Alembic Pharma's US sales are estimated to increase 55 per cent, while Gland Pharma and Rubicon Research are expected to report growth of 23 per cent and 22 per cent, respectively.

The depreciation of the rupee could also provide some support to exporters. Motilal Oswal noted that the rupee has depreciated 8.5 per cent against the US dollar and 5 per cent against the euro, creating a potential currency tailwind for export revenue and profitability.

The sharper pressure is visible in hospital stocks because of regulatory concerns around the pricing of consumables and oncology drugs.

Jefferies said consumables and oncology drugs account for around 15-20 per cent of hospital revenue. Depending on the pricing scenario and the ability of hospitals to pass on the impact, the brokerage estimates a 2-5 per cent hit to hospital EBITDA.

The government has started discussions with the medical sector and hospitals on rationalisation of trade margins for medical devices and consumables. The discussions follow concerns over markups on products such as syringes, IV sets, cardiac catheters, intraocular lenses, pacemakers and heart valves.

On oncology drugs, Jefferies highlighted the Supreme Court's observation regarding a 10-fold difference between the price to retailer and maximum retail price of a cancer drug.

The PTR was Rs 2,700 compared with an MRP of Rs 27,000. The brokerage also noted that the government has been given time until October 12 for inter-departmental consultations on the issue.

Based on a 16 per cent margin cap for oncology drugs and a 5 per cent margin for consumables, Jefferies estimates a 2-5 per cent impact on hospital EBITDA.

Jefferies believes the recent correction in hospital stocks could provide a buying opportunity despite the regulatory uncertainty.

The brokerage said hospitals have previously managed the impact of price reductions through increases in procedure prices and cost-rationalisation.

It cited the example of cardiac stents and orthopaedic knee implants, whose prices were reduced by 70-85 per cent nearly a decade ago. Hospitals subsequently used staggered increases in procedure prices and cost measures over 12-15 months to mitigate the impact.

Jefferies also pointed to the previous experience of Apollo Hospitals following regulatory action in 2017-18. The company used similar measures and was able to bring EBITDA margins back to earlier levels within a few quarters.

The brokerage said previous regulatory overhangs have generally resulted in consolidation in hospital stocks but have also created entry points. It noted that the negative impact of price caps has historically been reflected in stock prices for three to six months before recovery began.

Following the recent correction, hospital stocks are trading at implied FY28 EV/EBITDA valuations of 20-27 times, compared with 25-35 times a year earlier. Jefferies said companies capable of delivering sustainable high-teens EBITDA growth could offer attractive entry points after the correction.

The earnings outlook remains mixed across pharmaceutical companies. Motilal Oswal expects Laurus Labs, Gland Pharma and Rubicon Research to be among the stronger healthcare performers in Q2FY27, with estimated EBITDA growth of 53 per cent, 42 per cent and 38 per cent, respectively. Their estimated PAT growth stands at 65 per cent, 58 per cent and 57 per cent.

Emcure Pharma is also expected to report 21 per cent EBITDA growth and 32 per cent PAT growth. In contrast, Dr Reddy's Laboratories and Cipla are expected to report EBITDA declines of 44 per cent and 30 per cent, while Lupin's EBITDA could decline 11 per cent due to competition in Tolvaptan and Mirabegron.

Motilal Oswal's top healthcare ideas are Mankind Pharma, Rubicon Research, Emcure Pharma and Medanta.

For hospitals, Jefferies' preference order is Fortis Healthcare, Manipal, Apollo Hospitals, Max Healthcare and Medanta. The brokerage retained a BUY view on hospitals, saying regulatory concerns could weigh on stocks in the near term but may not materially alter the sector's longer-term growth outlook.