India’s Pharma Sector Surges on Strategic Partnerships, FII Inflows, and Bullish Outlook

The Indian pharmaceutical sector is enjoying a robust rally, emerging as one of the top performers on the National Stock Exchange (NSE) amid bullish brokerage calls, strategic global collaborations, and renewed institutional investor interest. The Nifty Pharma index rose 1.03% to 21,591.95 on June 5, 2025, signaling growing investor confidence in the sector’s long-term prospects.

Dr. Reddy’s Rides High on Alvotech Deal

Leading the rally is Dr. Reddy’s Laboratories, whose shares soared nearly 4% following a major strategic announcement: a partnership with Iceland-based biotech firm Alvotech to develop a biosimilar to Keytruda (pembrolizumab)—a blockbuster immuno-oncology drug that clocked $25 billion in global sales in 2023 and is projected to hit $34 billion by 2028.

The collaboration, which involves joint development, manufacturing, and commercialization, strategically positions Dr. Reddy’s in the high-value oncology biosimilar space. The partnership marries Dr. Reddy’s 25+ years of biologics experience with Alvotech’s biosimilar R&D and manufacturing capabilities. CEO Erez Israeli emphasized that this move “further enhances our capabilities in oncology,” while Alvotech Chairman Robert Wessman underlined their shared goal of improving access to cost-effective biologics.

The significance of this development goes beyond immediate share price movement—it cements Dr. Reddy’s status as a long-term contender in biosimilars, despite Keytruda’s patents only expiring post-2028.

Competitive Landscape in Keytruda Biosimilars

With Keytruda’s exclusivity ending in the coming years, pharmaceutical companies globally are gearing up for the biosimilar race. Samsung Bioepis launched Phase III trials for its SB27 candidate in March 2024, targeting over 600 cancer patients. Meanwhile, Sandoz and Formycon have opted for leaner regulatory pathways, reflecting evolving FDA stances that may soon allow biosimilar approvals without full-scale Phase III trials.

This has created a fertile ground for partnerships like Dr. Reddy’s-Alvotech, which leverage both R&D agility and commercial networks. Key challenges include potential delays due to licensing, “skinny label” strategies, and Medicare price negotiations—but the financial upside remains massive.

LIC Doubles Down on Pharma

Adding another layer of confidence to Dr. Reddy’s trajectory is the Life Insurance Corporation of India (LIC), which has steadily increased its stake in the company. Between October 2024 and June 2025, LIC acquired 1.67 million shares, pushing its holding from 6.2% to 8.2%.

This move aligns with LIC’s broader push into healthcare investments, having earlier upped stakes in firms like Cadila Healthcare and Granules India. As India’s largest institutional investor, LIC’s backing signals strong trust in Dr. Reddy’s fundamentals and its growth outlook, particularly as it scales up biosimilar capabilities.

Nifty Pharma's Top Performers

The broader rally in the Nifty Pharma index has been led by major players like Glenmark, Zydus Lifesciences, Lupin, and Laurus Labs. Below is a snapshot of the sector’s top performers as of June 5, 2025:

Earnings Powering Momentum - Dr. Reddy's

Dr. Reddy’s Q4FY25 earnings reinforce the stock’s strong performance. The company reported:

• Revenue: ₹8,506 crore (up 20% YoY)
• Net Profit: ₹1,594 crore (up 22% YoY)
• North America Sales: $418 million, up 5% QoQ after two quarters of decline
• European Generics: ₹3,588 crore for FY25, up 75% YoY
• Gross Margin: 55.6%, down 300 bps YoY

The growth was driven by new launches and its ₹597 crore revenue contribution from the Nicotine Replacement Therapy (NRT) business. Despite some margin pressure, Dr. Reddy’s continues to gain ground, particularly in international markets.

Brokerage Sentiment Turns Bullish

Brokerage houses are increasingly optimistic about Indian pharma. Axis Securities pointed to a strong biosimilars and GLP-1 pipeline, projecting a healthy FY26. “Buy” calls were issued on Lupin and Aurobindo Pharma with implied upside of 29–32%.

JM Financial also recommended Dr. Reddy’s, Sun Pharma, and Biocon, though it flagged that U.S. generics might see flat growth in H1FY26. Meanwhile, regulatory wins—like a favorable U.S. court ruling in the Myrbetriq generics case—boosted shares of Lupin and Zydus Lifesciences.

Institutional Flows Support the Rally

Foreign Institutional Investors (FIIs) poured ₹26,506 crore into Indian pharma stocks by mid-December 2024, second only to capital goods. This stands in sharp contrast to FIIs’ net outflows of over ₹50,000 crore from sectors like banking and energy.

Domestic Institutional Investors (DIIs) also stepped in during volatile periods. When FIIs pulled ₹87,000 crore in January 2025, DIIs invested ₹86,000 crore—underscoring pharma's status as a defensive yet growth-oriented bet.

Regulatory Hurdles: A Cautionary Note

Despite the optimism, the sector isn’t without risk. The FDA ramped up inspections of Indian plants in 2023–24, conducting 135 visits—the highest since pre-COVID levels. Several companies, including Granules India, Zydus, and Aurobindo, received warning letters for violations ranging from inadequate cleaning to data integrity lapses.

This heightened scrutiny could delay product approvals and pose challenges to exports, particularly to the U.S. Pricing pressures and input cost volatility also remain concerns, especially for API-heavy manufacturers.

Measured Optimism with Long-Term Potential

The pharma rally is supported by solid fundamentals—robust earnings, global collaborations, institutional inflows, and a healthy regulatory pipeline. While the market may enter a short-term consolidation phase, the long-term story remains compelling.

As Indian pharma firms pivot toward complex generics, biosimilars, and expanded global footprints, they offer diverse opportunities for growth, value, and defensive investors alike.