Pharma Stocks Fall as West Asia Conflict Disrupts Supply Chain and Raises Cost Pressures

Technically, the index is trading below its 50-day EMA and just above its 200-day EMA, indicating weakening momentum. As of 12:56 pm, 19 out of 20 index constituents were trading in the red, highlighting broad-based selling in the sector.

Rising Costs and Supply Chain Disruptions

The conflict has intensified cost pressures across the pharmaceutical value chain. India imports 40% of its crude through the Strait of Hormuz, making it highly vulnerable to geopolitical disruptions. Air freight costs have increased, while transit delays have also increased by 10-20 days. Container costs have risen sharply by 2-3 times, and overall input costs are up.

Energy remains a critical component, accounting for 20-25% of API manufacturing costs. Since most of the pharma feedstock is linked to petrochemicals, rising crude prices are directly impacting production economics. Additionally, there is a supply shortage of isobutylbenzene, a key raw material used in ibuprofen manufacturing, further tightening supply conditions.

India’s Dependence on Imports and Global Role

India’s pharmaceutical sector is heavily dependent on imports for key raw materials. In FY2025, India imported APIs worth ₹39,214 crore, with 74% of these imports coming from China. Despite this dependence, India plays a crucial global role, supplying 20% of generic medicines worldwide and meeting 40-50% of the US demand for generics. Notably, generic drugs account for 90% of prescriptions in the US, underlining India’s strategic importance in the global healthcare supply chain.

Inventory Cushion but Risks Ahead

Industry participants have indicated that there is currently no immediate shortage. Pharmaceutical companies are holding inventory of few months of raw materials, while finished medicines have a buffer. Global distributors are also operating with a 30 to 60-day supply.

However, if the geopolitical situation persists, this cushion may erode. Prolonged disruptions could pressure margins, potentially leading to price hikes and supply delays in the coming months.

Escalating Geopolitical Tensions

The geopolitical backdrop remains highly volatile. Statements from both the US and Iran suggest that the conflict may not end soon. US President Donald Trump has indicated that the situation is critical, with potential military action targeting areas linked to the Strait of Hormuz. In response, Iran has issued strong warnings, stating that while the US may have started the war, it will be Iran that ends it.

Israel has claimed the death of Iran's security chief, Ali Larijani, further escalating tensions. Meanwhile, Russia has criticised the attacks on Iran as unjustified and deceptive, warning that such actions are destabilising the region and pushing West Asia toward dangerous levels of conflict.

Outlook for the Pharma Sector

While the pharmaceutical industry remains stable for now due to inventory buffers, the ongoing war poses significant risks. Rising logistics costs, input inflation, and supply disruptions could weigh on margins. If the conflict continues, the sector may face sustained pressure, with the possibility of increased drug prices and delayed supplies impacting both domestic and global markets.