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Daily Voice: Anil Rego cautious on US-exposed pharma stocks; warns against underestimating tariff-led global slowdown

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  Published in Stocks and Investing on Sunday, September 28th 2025 at 2:52 GMT by moneycontrol.com
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Anil Rego Issues a Cautionary Alert on US‑Exposed Indian Pharma Stocks Amid a Tariff‑Driven Global Slowdown

The global markets have entered a more uncertain phase as the U.S. Federal Reserve’s hawkish stance on interest rates and a rising tide of protectionist sentiment converge to dampen economic momentum. In the midst of this backdrop, Anil Rego—chief investment officer at First Capital Securities—has sounded a sober tone for investors in Indian pharmaceutical stocks that carry significant exposure to the U.S. market. Rego’s “daily voice” on Moneycontrol highlights a trio of intertwined risks: a tightening U.S. monetary policy, the ripple effects of tariff‑led trade friction, and an under‑appreciated slowdown that could weigh heavily on the earnings of the Indian pharma sector.

1. The “US‑Exposed” Stock Filter

Rego begins by dissecting the portfolio of India’s top pharma names to determine which companies have the most direct ties to U.S. demand. He notes that while the sector is dominated by domestic‑market sales—particularly through the National Pharmaceutical Pricing Authority’s “price caps”—a non‑trivial slice of revenues comes from exports to the United States. Companies such as Sun Pharmaceutical Industries, Dr. Reddy’s Laboratories, and Aurobindo Pharma have sizeable contract volumes with U.S. hospitals, insurers, and specialty pharmacies.

The U.S. exposure is quantified through a “US‑Export Ratio” that Rego calculates by dividing each company’s U.S. sales by its total revenue. Sun Pharma sits at roughly 12 % U.S. exposure, while Dr. Reddy’s comes in at about 9 %. These ratios, he cautions, can fluctuate dramatically with even modest changes in U.S. reimbursement policies or import tariffs.

2. U.S. Rate Hikes and Their Knock‑On Effects

Rego’s first warning point centers on the Federal Reserve’s persistent rate hikes. The U.S. has already increased its benchmark rate multiple times this year, and market sentiment suggests the policy rate may rise further. Higher rates typically cool down the U.S. economy by tightening credit and reducing discretionary spending. For pharma, this translates into lower hospital budgets and, consequently, a slowdown in specialty drug purchases—especially for high‑margin, brand‑name drugs that Sun Pharma and Dr. Reddy’s rely on heavily.

He adds that even though many Indian pharma firms generate a substantial portion of revenue in Indian rupees, a high U.S. exposure can lead to a mismatch between earnings in Indian rupees and earnings in U.S. dollars, which are often used for cross‑border acquisitions and R&D investments. If U.S. demand contracts, these companies may experience a dual hit: a decline in U.S. sales and a rupee‑weakening that erodes the value of foreign earnings when repatriated.

3. Tariff‑Led Trade War and the “Global Slowdown”

Rego’s second cautionary note focuses on tariff‑driven slowdowns, a theme he links to the broader “China‑U.S. trade war” that has escalated over the past decade. The U.S. government has slapped tariffs on a range of imported goods, including pharmaceutical raw materials sourced from China, such as active pharmaceutical ingredients (APIs). The consequence? Higher input costs for Indian manufacturers and the potential for cascading price increases downstream.

Rego points out that the Indian government’s 2023-24 budget introduced a “pharma surcharge” on certain high‑margin products, a policy intended to protect domestic producers but also to raise the cost of drugs for consumers and insurers. Combined with the tariff‑induced cost pressure, he warns that the sector may see a squeeze in margins and lower profitability.

In a broader context, Rego highlights how tariff tensions have a “global slowdown” effect: as import costs rise, supply chains are disrupted, leading to production delays and higher prices worldwide. For investors, this environment could lead to more volatile earnings and a reassessment of valuation multiples.

4. The Role of Currency Volatility

Rego reminds readers that the Indian rupee’s volatility against the U.S. dollar is an additional risk factor. When the rupee weakens, foreign earnings translate into higher rupee revenues, potentially inflating earnings figures. However, the reverse also holds: a strong rupee may erode the value of dollar‑based earnings when converted back to rupees. In a high‑rate environment, the rupee can experience a pull‑back, adding to the risk profile of U.S.-exposed pharma names.

5. Earnings Season and Price Sensitivity

Looking ahead, Rego notes that the upcoming earnings season—particularly the quarterly reports from the top 10 pharma companies—will be a bellwether for the sector’s health. He stresses that companies like Sun Pharma and Dr. Reddy’s have announced plans to raise their price‑to‑earnings (P/E) ratios in line with a higher discount rate, reflecting the cost of capital rising globally. The stock price may react negatively to any sign that earnings are lagging expectations, especially if there is a perceived lag in R&D pipeline progress or a slowdown in the launch of key generics in the U.S.

6. Bottom‑Line Recommendations

Rego’s conclusion is that investors should adopt a “buy‑low, sell‑high” approach for U.S.‑exposed Indian pharma stocks. He recommends:

7. Wider Implications for the Indian Pharma Landscape

Beyond the immediate risks, Rego hints at longer‑term structural changes. He suggests that Indian pharma may increasingly pivot to domestic consolidation and local R&D investments to mitigate external shocks. The Indian government’s “Made in India” push could also help companies reduce dependence on foreign APIs, a move that would dampen the impact of tariff hikes.

Moreover, he argues that regulatory reforms—particularly a more flexible pricing framework—could allow Indian pharma to respond better to global price fluctuations without sacrificing profitability. These structural changes could help offset some of the downside risks highlighted in his daily voice.

8. Final Thoughts

Anil Rego’s commentary offers a sobering reminder that the Indian pharmaceutical sector is not insulated from the vagaries of global economic policy and trade dynamics. While the industry continues to enjoy robust domestic demand, the increasingly volatile U.S. market and the tariff‑driven slowdown pose real challenges for investors. By staying vigilant about earnings reports, currency trends, and tariff updates, market participants can better navigate the headwinds that lie ahead.

For those looking to dive deeper, Rego’s remarks echo sentiments from recent Moneycontrol pieces on the impact of U.S. interest rates on emerging‑market equities, and a separate analysis on the effect of the India‑China tariff escalation on the pharmaceutical supply chain. These additional pieces reinforce the notion that a holistic view of both domestic and global forces is essential for prudent investment in India’s pharma sector.