Mutual funds stay loaded up on Indian pharma – even as Trump turns up the heat

Pharmaceutical stocks are facing fresh fire from Washington, but for domestic mutual funds, the prescription remains the same: stay put or buy more. Even as Donald Trump’s latest tariff salvo injects fresh uncertainty into global healthcare markets, fund managers are staying overweight, convinced that India’s pharma giants have the scale, resilience, and global competitiveness to withstand near-term shocks.

Healthcare allocations remain firmly above benchmark levels, with a Motilal Oswal survey showing 16 of 20 major fund houses leaning heavier on the sector than the BSE-200. Their conviction is reflected in chunky bets on the marquee names of Indian pharma—Abbott India, Sun Pharmaceutical Industries, Cipla, Dr. Reddy’s Laboratories, Lupin, Divi’s Laboratories, Glenmark Pharma, and Biocon.

For many fund managers, pharma is not just a defensive hedge against global uncertainty—it’s a structural growth story. With India cementing its place as a pharmacy to the world, Trump’s tariff tantrums may only be noise against the deeper signal: pharma is still one of the most bankable themes in Indian equities, fund managers say.

US tariffs creates short-term noise

The latest bout of volatility followed U.S. President Donald Trump’s September 25, announcement of a 100% tariff on imported branded or patented pharmaceuticals, effective October 1. The measure is part of a broader strategy to cut drug prices and encourage local manufacturing, building on a May 2025 executive order that introduced “most-favored-nation” pricing. Importantly, generics were explicitly excluded from the order, and companies already investing in US facilities can apply for exemptions. Many Indian companies already operate facilities in the United States, offering a potential hedge against trade restrictions and ensuring uninterrupted market access such as Sun Pharma, Lupin, Cipla and Zydus.

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That distinction matters. Sailesh Raj Bhan, Chief Investment Officer at Nippon India Mutual Fund, notes that Indian companies with large U.S. generic portfolios have been under pressure for six to nine months, delivering negative returns since late last year. “Much of the weakness was tied to fears of US tariffs,” he says. But he notes recent announcements show generics remain outside the tariff picture, which is reassuring.

Bhan adds that Indian pharma valuations look compelling compared with sectors such as cement. “We’ve been adding to our positions and remain overweight. Indian pharma benefits from scale, global competitiveness, and resilient management. Generics offer modest but steady profitability, which is hard to replicate elsewhere. Domestic branded companies are also attractive, particularly given India’s 35-crore-plus population over 50, whose medical needs and spending power mirror the U.S. elderly population.”

Shreyash Devalkar, Head of Equity at Axis Mutual Fund, echoes the optimism but warns of medium-term uncertainties. “US generics remain competitive, but profitability pressures persist because of product concentration. Specialty innovator businesses are secular, but tariffs could increase capital intensity. Domestic pharmacy is a steady-growth business, and Indian CDMOs look promising given rising capabilities and deepening client relationships. Our frontline funds remain overweight, focusing on domestic pharma and CDMOs,” he explained.

George Thomas, Fund Manager at Quantum Mutual Fund added that they are underweight the healthcare sector primarily because they don’t hold hospital companies. :Excluding hospitals, our pharma weight is roughly in line with the benchmark. We don’t take top-down sector calls; allocations reflect stock-specific opportunities. Even a hypothetical 100% tariff on generics would still leave Indian products cost-competitive, since prices typically collapse once patents expire. The more sensitive area is CDMOs, which could face indirect pressure if U.S. innovators shift manufacturing overseas, potentially affecting the future drug pipeline,” he said.

Prashant Nair, Lead Analyst at Ambit Capital, notes that the tariff announcement could affect specialty portfolios such as Sun Pharma, which derives just under 20% of its revenue from U.S. specialty products. “However, U.S. manufacturing may qualify for exemptions. Generics produced in the U.S. are not affected. Peers like Cipla and Dr. Reddy’s have lower exposure to branded products. Contract manufacturers might face indirect pressure if clients struggle, but costs can often be passed on, limiting the impact,” he explains.

Valuations present selective opportunities 

Valuations across the pharma landscape remain broadly attractive. Devalkar observes that overall pharma valuations have stayed stable over the past decade, though CDMO and domestic pharma stocks have re-rated significantly. Bhan agrees, adding that large-cap generics remain compelling even as some sub-segments trade at premium multiples. “Pharma isn’t one uniform segment. It includes branded generics, contract manufacturing, diagnostics, hospitals, and APIs. Hospitals and CDMOs are trading at a premium; diagnostics are somewhat expensive but show steady growth; branded generics are modestly valued and have corrected over the last nine months despite the post-COVID rebound,” he said.

Thomas emphasizes a valuation-driven approach. “We’ve been actively adding to positions in generic pharma players when prices look attractive relative to intrinsic value, without waiting for a market verdict. While healthcare and pharma valuations vary, generic companies in India offer reasonable value. Hospitals and some CDMO players are relatively expensive, and a few CDMO firms are banking heavily on China-plus-one expectations,” he says.

Looking ahead, fund managers remain focused on structural growth rather than short-term policy swings. Thomas notes that a broad market re-rating is unlikely in the immediate future because of policy uncertainty, but India offers secular growth aligned with nominal GDP of 11–12%. “Current demand-supply dynamics for US generics remain stable, and no major disruptions are expected. The hospital segment may see moderated growth after strong price improvements and aggressive expansion in recent years, which has created a high base,” he adds.

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