The best of Pharma

The plot below displays CNX Pharma and Nifty.

The plot below displays the relative performance of CNX Pharma vs Nifty.

Here we made a comparison of returns of CNX Pharma and Nifty. The blue line is the relative outperformance of CNX Pharma vs. Nifty.
The ratio line shows that healthcare sector has consistently outperformed Nifty since February 2012. Had we gone long on CNX Pharma and simultaneously gone short on Nifty for the respective period, the strategy would have generated 10% returns.
Fundamentally the steep fall in health care during September could be attributed to the decision regarding the new pharmaceutical policy. The policy proposed a cap on the prices of essential medicines based on the weighted average price of Top 3 brands. However, statistically speaking Health care is the top performing Indian sector today. We don’t have any selections for ORMI India 30 from health care. And since best performers tend to underperform, we continue to anticipate underperformance for the sector going ahead.
But generalizing what’s bad (good) for a sector as bad (good) for a component stock is incorrect, because a falling sector could have an outperforming stock. As performance divergence can even play out intra sector. Let’s look at some health care stocks, which could still deliver despite the outperformance overhang on the CNX Pharma sector.
Recommendations
In the Pharmaceutical sector Aurobindo Pharma and Jubilant Life Sciences stand out. Below we discuss these stocks based on their Jiseki cycle and rankings. The proprietary ranking methodology looks at numerous performance criteria such as price performance, relative out performance, Jiseki rankings.
Aurobindo Pharma
Aurobindo Pharma is ranked 27th based on Orpheus proprietary ranking methodology, which makes it the 2nd best performer in the Pharmaceutical sector. The stock has a positive price trend and positive Jiseki cycle since the last 49 days with 23% return in this period. From a quarterly Jiseki performance ranking perspective also the stock is 16.08 percentile which suggests that amongst BSE 500 stocks it still is in the bottom 20 percentile, making it one of the worst stocks in the Indian universe. ORMI methodology looks at buying the worst negative outliers as they are prone to a positive reversion.
Jubilant Life Sciences
Jubilant Life Sciences is ranked 22nd with quarterly Jiseki ranking of 12.94 percentile. This stock has risen by 4.8% in the last 48 days and has both a positive price trend and Jiseki cycle.
Technical Review
We are bullish on Aurobindo Pharma as it is emerging from the worst in terms of ranking. RSI is above its support level of 40. If the stock goes above 160, then its a buy.
Another technical buy for us is Jubliant Life Sciences. The RSI is above its multi week resistance and prices have crossed resistance level of 220.
Summary
We have 11 running total positive (both Jiseki and price signal positive), 2 running total negative (both Jiseki and price signal negative) and rest neutral (both Jiseki and price signal non-confirming).
Positives (11)
There are 11 components that are positive on both price and Jiseki cycle. Among these components, Aurobindo Pharma is able to generate a return of 23% in span of 49 days of signal holding period. IPCA Laboratories and Divi’s Lab is able to generate profit of more than 10% in their signal holding periods.
Negatives (2)
There are 2 components that are negative on both price and Jiseki cycle. Orchid Chemicals lost around 10.4% in span of 28 days.
Non-Conforming (15)
This leaves us with 15 components that have a non-confirmation between price and Jiseki cycle filters. Wockhardt showed return of approx 250% in a year.
Please find below some technicals on our recommendations.

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Indexing: The INDIA 30 Orpheus Risk Management Index (ORMI) is based on proprietary algorithm.
The indices values that are disseminated today are broadly based on market capitalization methodology. Market capitalization methodology has been challenged globally for a few broad reasons. 1) As an asset strengthens it is given more weight 2) As an asset weakens it is given lesser weight. This on one side captures momentum but on the other side suggests investors to focus more on growth compared to value. This increases portfolio risk when market growth slows down or reverses, as has been the case since 2007. When markets contract, the erstwhile top performers push into red for extended period of time causing large drawdowns and emotional pain.
The India 30 Index is based on the above extreme reversion idea i.e. outliers tend to reverse, which suggests that investing is about value picking and extremes are prone to reversion. Our Index extends and fine tunes the idea first mooted by De Bondt and Thaler in their 1981 paper suggesting that 3 year worst losers portfolio tends to outperform the 3 year best winners portfolio.
Coverage India: CNX100, BSE500 traded stocks and Indian Indices.
Ayushi has done her masters in economics from Delhi School of Economics and then completed her Post-Graduation in Finance from National Institute of Securities Markets. She completed her graduation in Economics from Lady Shri Ram College. A keen econometrician, Ayushi enjoys financial modeling and risk management.