The Dissection of an Economy

The Pharmaceutical sector is all over the news and stocks of the sector have outperformed the markets in the last two months. The NIFTY PHARMA index rose a whopping 30% in April! Well, it is understandable that during a global health crisis, the interest in pharmaceutical stocks is bound to increase. However, the question remains. Is this growth sustainable? Chart Check - NIFTY PHARMA Index Before diving into the future growth prospects of pharmaceutical companies, I will highlight the performance of this sector in the stock market over the last 10 years. NIFTY PHARMA- Monthly The image above showcases the monthly candlestick chart for NIFTY PHARMA index from January 2010 till the present day. Each green/red candle indicates an increase/decrease in the price of the index over a period of 1 month. We can see in the chart that the index climbed rapidly at the rate of 27.89% YoY from the beginning of the decade till April 2015. Here is where it gets interesting...

As of writing this article, COVID-19 has ravaged across the globe, affecting over 3 million people worldwide. The situation is bleak as the global economy has come to a standstill. The longest bull run in history is over and stock markets are crashing faster than ever before. Financial institutions and companies have pinned the blame on the pandemic for the mammoth loss in value and revenue. The stock prices of these companies have taken a beating, some declining as much as 50%. However, upon taking a closer look, even after the bloodbath on D-Street, the market's barometer of performance (NIFTY50) is trading at a premium of 22 times its consolidated earnings! The big question remains, "Has the market bottomed yet?"  Many suggest that once we overcome this health crisis, we will see a V-shape recovery in economic activity and hence stock prices will go back to where they belong, setting new all-time highs. I am of the opinion that the pandemic was just a pin to ...