ICRA has downgraded the Indian domestic pharma sector to ‘negative’ from ‘stable’, as the credit rating agency believes the lockout in parts of China following the outbreak of coronavirus will affect Indian pharma companies. Though the majority of the pharmaceutical manufacturing facilities in China are located far away from the coronavirus-affected sites, there has been a disruption in the supply chain due to the lockouts.

Considering Indian pharma companies’ dependency on China for raw materials, a prolonged shutdown of factories might lead to shortage or increase in prices of essential active pharmaceutical ingredients (API). However, ICRA said that the impact of production shutdowns and increase in raw material prices on companies’ profitability “may however be a function of company-wise product mix, raw material sourcing mix and inventory levels”. Several companies that ET spoke to said that they have stocks that will last them till May end.

But earlier this week the department of pharma imposed export restrictions on 12 drugs including a few antibiotics. India imports nearly 70 per cent of APIs from China.

It is this dependency that is the cause of alarm. “Even if alternative sources are available, China remains the preferred source given the economical rates,” ICRA said. However, stock markets remained neutral to the alarms raised over this perceived shortage.

The BSE Healthcare index closed in green on Thursday's trade. Crisil, another rating agency, is predicting that with the weather getting warmer over the next two months, the impact of the outbreak may subside in China by April 2020.

In the worst case, the epidemic might well extend through the first quarter of FY21, intensifying the severity of the impact, Crisil warned.

“If not contained quickly, the epidemic will have a knock-on effect in the world economy and disrupt global supply chains,” the agency said.