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Pharma stocks, including Lupin, Gland Pharma, Aurobindo Pharma and Cipla, fell as much as 2% in Wednesday's trading session.
The why: this came after US President Donald Trump announced a phased tariff plan for imported generic medicines. The impact was also felt in the Nifty Pharma index, which fell nearly 2%, with all its constituents trading in the red.
Okay, so what did the Tariff King actually say?
Trump announced a phased tariff plan on imported generic drugs to encourage domestic pharmaceutical manufacturing. Under the proposed framework, generic drugs imported into the US will continue to attract a 0% tariff for two years from August 1.
From August 2028, a 100% tariff will be imposed for one year, followed by a 200% tariff thereafter.
The India impact: US is India's biggest overseas market for generic medicines. According to IQVIA, Indian drugmakers supply nearly 47% of all generic medicines sold in the US. That means any major policy change there is closely watched by investors here.
At first glance, the tariff plan looks worrying. Many Indian pharma companies earn a large chunk of their revenue from selling generics in the US. But there's a catch.
The tariffs don't kick in immediately. Companies have a two-year breathing space, giving them time to adjust their supply chains or expand manufacturing in the US. And that's easier said than done.
Making generic medicines in the US is far more expensive. Manufacturing costs are estimated to be 30-50% higher than in India. Add to that fierce competition, falling drug prices and strict regulatory standards, and shifting production overnight becomes a difficult task.
So, is everyone equally exposed? Not really. Some companies are better prepared than others.
Aurobindo Pharma stands out because it already has a sizeable manufacturing presence in the US. Senores Pharmaceuticals is also relatively well positioned, while Sun Pharma has been steadily expanding its US footprint through acquisitions and strategic investments.
On the other hand, Dr. Reddy's Laboratories, Lupin, Cipla and Zydus Lifesciences still rely heavily on manufacturing in India. That said, their existing US operations and product mix could soften the blow.
Biocon is another company to watch, as a large share of its biosimilars and generic medicines are manufactured in India and Malaysia. The proposed tariffs may create long-term challenges, but for now, Indian drugmakers still have time and a significant cost advantage on their side.
