Pharma sector may give 25 percent returns in pre-election year: Report

New Delhi: The healthcare sector has long been the underperformer but is likely to give as much as 25 percent returns in the pre-election year, while for consumer staples and information technology segment it could be even more, says a report.

According to Edelweiss Investment Research (EIR), defensive sectors (those stocks that provide a constant dividend and stable earnings regardless of the state of the overall stock market) tend to rally in the year before general election results.

Some of these defensive sectors include information technology, fast moving consumer goods (FMCG) and healthcare companies.

"Information technology sector is expected to give 52 percent returns in the pre-election year (12 months prior to the announcement of general election results). For consumer staples and healthcare it would be 29 percent and 25 percent respectively," Joaquim Fernandes Research Analyst at EIR told.

Since January this year, IT and FMCG have been outperforming the market by a huge margin, while pharma has been an underperformer and hence is likely to see an uptrend in the coming days.

"Pharma has long been the underperformer and is currently seeing some triggers supporting a trend reversal," Fernandes added.

According to Edelweiss Investment Research, there is a strong correlation between the S&P US pharma index and NSE Pharma Index and post a four-year consolidation both indices have broken out together and are likely to rise in the coming months.

Moreover, an equally weighted 10 stocks of NSE Pharma Index indicates that momentum is picking in the pharma pack.

"NSE Pharma Index has completed a 40 percent decline. Now, we are seeing a breakout from that correction and this gives us confidence that we will see a trend reversal," Fernandes said, adding that dollar strengthening or rupee depreciating will give another tailwind effect on the sector.