India's pharmaceutical sector is expected to post moderate growth in the second quarter (Q2) of FY 2025-26, as the industry navigates a complex mix of domestic tax adjustments, global pricing pressures, and selective product gains. While new product launches and steady biosimilar sales offer some relief, headwinds from the recent GST rate revisions and weakness in the US generics segment could weigh on overall performance.
Domestic Pharma Growth May Slow Slightly After GST Rate Revision
According to market estimates, the Indian pharma market is projected to grow around 10% year-on-year, but a 50-200 basis point impact is likely from lower primary sales due to GST rate changes implemented in September 2025.
Chronic-focused companies such as Sun Pharma, Torrent Pharmaceuticals, and Zydus Lifesciences are expected to outperform peers, while acute-heavy firms like Alkem Laboratories and Mankind Pharma could report slower growth during the quarter.
US Generics Business Faces Flat Growth, Margin Pressures
The US generics segment remains under pressure, with flat quarter-on-quarter growth anticipated. The decline in sales of the high-margin cancer drug gRevlimid across Dr. Reddy's Laboratories, Aurobindo Pharma, Cipla, and Zydus Lifesciences, along with continued price erosion in base products, could offset gains from new launches. However, drugs like gSpiriva (respiratory) and gJynarque (kidney), as well as new entrants such as gEntresto and gXarelto, are expected to provide partial relief.
Company-Specific Trends and Launch Highlights
- Cipla may see a sequential decline in its US business due to flat Lanreotide and Albuterol sales.
- Biocon could post around 14% growth in its core biosimilar segment, driven by demand stability.
- Sun Pharma investors will focus on updates regarding its specialty portfolio, including the Leqselvi launch and commentary on tariff-related impacts on branded drugs.
- Lupin's outlook on gTolvaptan competition and Dr. Reddy's plans to launch semaglutide in Canada will also be closely tracked.
- Aurobindo Pharma's efforts to reduce losses at its PENG unit remain a key operational focus.
API and CDMO Players Maintain Steady Momentum
The API (Active Pharmaceutical Ingredient) and CDMO (Contract Development and Manufacturing Organisation) segments are likely to record high single-digit growth year-on-year, led by Divi's Laboratories, Laurus Labs, and Sai Life Sciences. In contrast, Syngene International and Piramal Pharma may face muted numbers due to inventory destocking in export markets.
Analysts View Q2 as a 'Transition Quarter'
Analysts describe Q2 FY26 as a "unique quarter" characterized by volatility and transition. The Head of India Equity Research at Nomura noted,
"There's just too much volatility and disturbances. The slowdown in India because of the GST implementation will likely be reflected this quarter, but that should reverse in the next one."
He further added that the decline in Revlimid contributions could hurt margins for some firms.
"Revlimid is a high-margin product, and if that starts to decline, you could see that manifesting into lower margins," he said.
On a positive note, he emphasized that global innovators are increasingly diversifying away from China, which bodes well for India's CDMO sector in the long run.
"From a five-year perspective, this space provides a lot of opportunities. But in the near term, given the run-up in stock prices and valuations, one may not expect a lot of return immediately," he added.
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