📰Explained: India's Pharma Industry

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Welcome to the best way to stay up-to-date on India’s financial markets. Today, we’re discussing one of India’s most crucial and burgeoning industries: pharmaceuticals.

Then, we close with Gupshup, a round-up of the most important headlines.

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Market Update.

India’s Pharmaceutical Industry, Explained.

At Samosa Capital, we’ve closely tracked the shifting tariff landscape in India and abroad, and few industries have seen as much recent turbulence as pharma. In just the past two weeks, Trump has floated 26 percent reciprocal tariffs on several countries, including India, initially sparing pharmaceutical products, only to suggest days later that those too might be targeted. Now, U.S. probes into the industry signal that tariffs could still be imposed, even during the current 90-day reprieve.

Zooming out from Trump, pharma has had an interesting flow over the last few decades. The inflow of researchers and students from India and China to the US has made both countries much more advanced. Researchers and students alike might choose to stay in the US or go back home to contribute to domestic industries. Although China has higher return rates, India has also benefited from this trend.

India’s pharmaceutical exports surged at an 8 percent annual growth rate over the past five years, reaching $27 billion (₹2.3 trillion) in 2023, with formulations accounting for 72 percent of outbound receipts and APIs the balance. Yet, despite shipping one in five generic doses worldwide, India ranks only 11th in export value (3 percent of the global $1.6 trillion (₹136 trillion) market), underscoring the need to pivot from low-margin commodity generics to higher-value segments. US generics alone absorb $25 billion (₹2.1 trillion) of Indian output annually, but they represent just 17 percent of America’s $150 billion (₹12.8 trillion) generic market, leaving vast headroom for specialty dosage forms. European price-cap orders and the looming threat of 26 percent US tariffs threaten 1–2 percent of industry-wide EBIT, equivalent to roughly $500 million (₹42.5 billion) of pre-tax profits.

Domestically, 3,000 formulation plants — of which 500 are US FDA compliant — serve a $63 billion (₹5.4 trillion) home market even as 65–70 percent of critical APIs continue to be imported from China, highlighting a strategic vulnerability. PLI schemes are expected to reimburse up to 20 percent of incremental sales on 15 key starting materials and greenlit 35 greenfield API projects. With the 2025 Union Budget promising low-interest loans and dedicated “bulk-drug parks,” India aims to cut freight costs (currently 4–6 percent of API costs) and freight-related dual-sourcing premiums, potentially boosting gross margins by 100–150 basis points.

On the R&D front, Indian pharma’s spend hovers at roughly 1 percent of revenues far below the 20–25 percent typical among global innovators. Proposals to introduce a 200 percent weighted tax deduction and a new R&D-focused PLI could feasibly triple domestic R&D to $3 billion (₹255 billion), catalyzing the creation of new chemical entities and novel biologics (NCE/NBEs). Already, the top 10 Indian companies boast over 40 NCE/NBE candidates in various clinical phases, and more than 100 kiloliters of biosimilar capacity queued for commissioning through 2027. The biosimilars market, worth $30 billion (₹2.6 trillion) today and forecast to exceed $100 billion (₹8.5 trillion) by 2030, stands out. Indian players currently hold under 5 percent of this segment, but early entrants have demonstrated the ability to capture 30–40 percent of post-patent expiry volumes.

Contract services are booming in parallel. India’s CRO segment doubled to $2.5 billion (₹212.5 billion) in 2023, growing at a 20 percent pace compared to the global 13 percent, while the CDMO market reached $20 billion (₹1.7 trillion), driven by API shortages and reshoring debates. By 2030, outsourcing volumes are projected to climb to $44 billion (₹3.7 trillion) for CROs and $130 billion (₹11.1 trillion) for CDMOs, buoyed by over 21,000 active drug pipelines worldwide and acts like the US Biosecure Act that limit partnerships with China. To capture this wave, Indian service providers are investing in high-potency APIs, peptides, ADCs, and biologics, and integrating AI-driven discovery tools that can accelerate lead optimization by 40 percent and reduce time-to-clinic by up to six months.

Regulatory friction remains a chokepoint. US ANDAs clear in approximately 180 days on average, while Europe’s decentralized procedure appointments still incur 200–300 day backlogs, with batch testing at ports adding another 60–90 days. India’s recent Schedule M revisions align plants more closely with WHO’s guidelines, yet failed audits still stand at 9 percent versus the global 4 percent benchmark. Achieving higher membership status within the next decade would streamline approvals, but it will require sustained enforcement of quality standards and expansion of inspection capacity by 50 percent.

Against this backdrop of opportunity and threat, digitalization and sustainability offer further strategic levers. Industry 4.0 investments can improve overall equipment effectiveness from 60 percent to 85 percent, cutting per-unit costs by 10 percent. Generative AI, still nascent in Indian pharma, could add an estimated $2–3 billion (₹170-255 billion) of value over the next five years via accelerated target identification and clinical-document automation.

Next Friday, we’ll break down which specific stocks in the pharma industry are catching our attention.

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Gupshup.

Macro

• Gold prices continue surging, hurting the industry but boosting owners. Gold is routinely used as an inflation and volatility hedge, which has led to its investment popularity. Investors have been seeking refuge in the asset, which has pushed asset prices to all-time highs at $3,500 (₹297,500) per ounce. 

• Indian stocks and bonds underperformed this week due to geopolitical tensions. Indian retaliation has markets jittery, with the 10-year yield also falling 5 basis points to 6.37 percent. A decline in rates and asset prices signals that market participants expect market fear to cause easing from the RBI if the economy is hard hit.  

Equities

• Reliance beats profit estimates as energy unit recovers in Q4. Net income rose 2.4 percent to $2.3 billion (₹194.1 billion) after refining businesses improved. There was a 10 percent surge in revenue, while energy revenue specifically rose by 15 percent. Ambani also noted that fledgling projects in renewable energy were moving from incubation to operation in the next few quarters. 

• Tesla refunding early Indian Model 3 bookings signals that entry is near. Customers booked the Model 3 back in 2016, but that model has since been discontinued. The refund email also mentioned that when offerings are finalized, Tesla is going to reach back out. 

• Shriram Finance is going to enter the payments business with UPI to grow its business by 15 percent. Shriram Finance is offering services to existing customers. For India, expanding through private companies is helpful since the concentration risk dies down. 

• Apple wants to make all of its US iPhones in India going forward. The company would have to double production to 80 million units per annum, which would require massive investment and construction. Currently, they have exported $17.5 billion (₹1.5 trillion) in the past year from Foxconn’s southern India manufacturing hubs.  

Alts

• Nashik is growing its wine culture, leading to international investors like LVMH. The region has won several wine awards, and LVMH has opened vineyards for its alcohol business, Moet-Chandon. Tourism is expanding to the region now, too, with 35,000 visitors coming annually.  

Policy

• India and Pakistan trade blows in the Kashmir region, and warships leave ports. Tensions between the countries have fully mounted into escalation with gunfire being exchanged in the Kashmir region. Several Indian warships and submarines reportedly left their ports as well.  

• The US is seeking an FTA with emphasis on e-commerce, crops, and data storage. In particular, US businesses want greater e-commerce access, which India has blocked to protect small kirana shops, while US genetically modified food faces barriers from Indian imports. India has various rules on the storage of information, which has to be on local servers, which has been a speed bump for companies like Google, Amazon, and Meta.  

See you Monday.

Written by Yash Tibrewal. Edited by Shreyas Sinha.

Disclaimer: This is not financial advice or recommendation for any investment. The Content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice.