Pharma Stocks on Edge: How US Tariff Announcements Are Shaping Market Sentiment

Indian pharma stocks were rattled in late September after the United States announced steep new tariffs on drug imports. President Donald Trump has announced a 100% duty on branded and patented medicines. The move, aimed at encouraging drugmakers to shift production to American soil, sent shockwaves through global markets and sparked a swift sell-off in pharmaceutical counters back home.

What’s the News?

On 26 September 2025, Trump unveiled a 100% tariff on all branded and patented pharmaceutical imports into the US, effective from 1 October 2025. The order was issued under Section 232 of the US Trade Expansion Act, a provision typically used for industries such as steel and aluminium. This time, the administration argued that heavy reliance on foreign drugmakers could weaken America’s ability to respond to health emergencies.

The tariff will remain in place while a full investigation runs its course, with the final report due in early 2026. Companies that are already setting up manufacturing plants in the US have been spared. The move aims to incentivise domestic production and reduce reliance on foreign drugmakers, particularly from Ireland, Switzerland, Germany, and India—the key suppliers of high-value medicaments and vaccines.

For Indian drugmakers, the good news is that generics—the backbone of India’s pharmaceutical exports to the US—are currently exempt from the tariff net. Even so, the announcement triggered sharp intraday swings, reflecting just how sensitive the sector is to changes in US policy. Analysts caution that while the direct hit may be limited, the uncertainty could keep investors and traders on their toes in the weeks ahead.

Impact of Tariffs on the Market and Market Sentiment in India

Here is how a 100% tariff will shape the market:

• India’s Position

India exported more than $10.5 billion worth of pharmaceutical products to the US in FY25, of which nearly 88% were generic formulations. These generics are currently exempt from the tariff, as the levy targets only branded and patented drugs. This composition has provided a buffer against immediate revenue shocks for most exporters. However, analysts caution that any future reclassification or expansion of tariff scope could expose complex generics and biosimilars, which are increasingly part of India’s export portfolio.

• Market Reaction

On 26 September 2025, the Nifty Pharma Index fell 2.54% within hours of the tariff announcement. This marked the steepest single-day decline in the sector since March 2023.

Pharma stocks faced sharp selling pressure on Dalal Street following the announcement, with Sun Pharma leading the decline, slipping 5% to ₹1,547, marking its lowest point this year. Biocon shed 3.3% to ₹344, while Zydus Lifesciences lost 2.8% to ₹990. Aurobindo Pharma dropped 2.4% to ₹1,070, and Dr. Reddy’s slipped 2.3% to ₹1,245.30. Lupin and Cipla fell 2% each, whereas Torrent Pharma registered the mildest fall of 1.5% to ₹3,480.65.

The volatility reflects investor concerns over supply chain disruptions and margin compression.

• Mutual Funds Reaction

Pharma-focused mutual funds have underperformed sharply, with Quant Healthcare Fund declining 10.49% and ICICI Prudential Nifty Pharma Index Fund down 7.78% over the past year. Only four out of 16 pharma sector funds posted positive returns, with the best performer yielding just 4.47%. The underperformance predates the tariff announcement, indicating that expectations of protectionist US policies were already factored into the market. The announcement has exacerbated volatility, prompting fund managers to rebalance portfolios away from US-exposed pharma assets.

• Cost Pass-Through

Analysts note that chronic therapies, such as immunomodulators and anti-diabetics, may retain volume despite price hikes, as patients are less likely to switch or discontinue treatment. In such cases, exporters may successfully pass on tariff-induced costs to US consumers. However, this strategy is viable only for drugs with low price elasticity and strong brand loyalty. Acute therapies and non-essential medications face a higher risk of demand erosion if prices rise.

• Supply Chain Vulnerability

Many branded pharmaceutical products exported to the US are manufactured by Contract Development and Manufacturing Organisations (CDMOs) located in Europe and Asia. This offshore production model now faces tariff exposure. Transitioning to US-based CDMOs or setting up in-house facilities domestically could take 6–24 months and require regulatory re-approvals. The fragmented nature of global supply chains complicates rapid realignment, resulting in increased compliance costs and operational delays.

Short-term Trading Impact

For short-term traders and hedge funds, the announcement created clear, time-limited opportunities:

• Volatility trades. Option-based strategies that profit from significant moves (straddles/strangles) were effective when implied volatility rose; traders who bought volatility before the calming statements saw gains.

• Momentum and reversal trades. Many algos and day traders sold into the initial drop and bought back on the clarifications, a “sell the rumour, buy the fact” pattern that was visible in various markets. Some local brokers explicitly advised clients to watch for clarifications before taking large positions.

However, not all speculators profited. Those who leveraged positions and were caught by quick stop losses faced outsized losses. Mutual fund investors with concentrated holdings suffered net asset value declines as fund managers marked down positions in response to the worst-case headlines.

Conclusion

While generics are currently exempt, industry experts warn of a potential policy shift in 2026. The ongoing Section 232 investigation includes a review of whether generic imports pose a risk to national security. If the scope expands, even low-cost formulations could face tariffs. This uncertainty is already influencing strategic decisions, with some exporters accelerating their investments in US facilities and others lobbying for bilateral exemptions. The risk of generics being targeted remains a key overhang for market sentiment.

Sources

The Hindu
Vision IAS
Business Outreach
The Economic Times
The Times of India
Mint
CNBC
NDTV
The New Indian Express
Hindustan Times
CNBC TV18