Healthcare Industry Analysis: Technical Outlook

Read a technical outlook for the Nifty Healthcare Index and gain insights into the key trends shaping the healthcare industry. 

A key sector to watch out for in the 2025 budget will be the healthcare sector. In the 2024 interim budget the government allocated Rs.90,958  crores to the Indian healthcare sector. The healthcare sector is one of the most important sectors for the economy, and the movement of listed healthcare companies can be measured by the nifty healthcare index. This index comprises companies from the pharmaceutical, hospital, and diagnostic sectors.

This blog provides insights into the price action of the nifty healthcare index and budget 2025 expectations for the healthcare industry.

Nifty Healthcare Index: Returns

Time Horizon% Returns
1-month-10.25%
3-month-6.96%
6-months-2.61%
1-year19.69%

Source: NSE

As can be seen from the returns, the healthcare index has shown good performance in the past year. Recently (since the past month), it has corrected over 10.25%. The reason behind the up move in the past year is that the healthcare companies are presenting higher-than-expected quarterly results. However, the recent down move can be attributed to recent FII selling across the markets and overvaluation concerns for some healthcare stocks. 

Technical analysis: Nifty Healthcare Index

Nifty Healthcare Index

Source: Tradingview (Chart 1: Nifty Healthcare Index, Daily chart, 200 EMA, as on Jan 29, 2025)

The daily chart of the Nifty healthcare index as of January 29, 2025, suggests the following:

  • There is a double top pattern forming on the Nifty healthcare index chart (Chart 1). The pattern has clearly broken below its neckline (red horizontal line). This is a bearish sign. If the index value stays below its neckline and forms a few red candles, it would confirm the pattern.
  • Despite a double top formation, the index is taking clear support on the 200-day EMA. This suggests that there is a possibility of the price moving above the broken neckline, which would indicate the failure of the double-top pattern.

The immediate resistance level is in the 13,700 – 13,800 zone (Chart 2). It means that if the index reaches this zone, it can witness some selling pressure.

Source: Tradingview (Chart 1: Nifty Healthcare Index, Daily chart, 200 EMA, as on Jan 29, 2025)

This shows that the Nifty healthcare index is currently at a very crucial level where any downward move will be a confirmation of the double top pattern, and hence a bearish signal, and an up move and breakout above the 13,700 – 13,800 zone will confirm failure of the double top pattern and continuation of the uptrend.

Budget impact

Now let us take a look at what market participants must look for in various scenarios:

1. Positive Budget for Healthcare Industry: If  the market participants consider the budget good for the healthcare industry, the healthcare and pharmaceutical stocks will rally. This can happen if there is some major GST relief, tax exemption of medical bills for individuals, major spending in the healthcare sector, or announcement of any new government plan for providing healthcare.

In any of these cases, the healthcare index can rally, and investors should look for the following technical signals:

  • A breakout above the 13,700 – 13,800 resistance zone.
  • This signal can be confirmed by using the RSI index. In case of a bullish move, confirmation can be received from the RSI index moving past its 50 level, indicating positive momentum.

Source: Tradingview (Chart 1: Nifty Healthcare Index, Daily chart, RSI, as on Jan 29, 2025)

2. Negative Budget for Healthcare Industry: A negative budget for the healthcare industry would mean very little to no extra initiatives by the government to boost healthcare as compared to the previous budget. In that scenario, the healthcare industry can face some problems.

Healthcare stocks have shown a good rally in the past few years. The nifty healthcare index has gained without forming any significant support or resistance zones in between. And an unfavorable budget can bring down the nifty healthcare index. The next major support zones for the nifty healthcare index are 12,900 – 13,000 and 12,100 – 12,200.

Source: Tradingview (Chart 1: Nifty Healthcare Index, Daily chart, 200 EMA, as on Jan 29, 2025)

If in case the healthcare index plummets to these levels, then market participants should carefully watch the price action and try to look for any confirmatory or reversal signals.

Budget 2025 expectations

To increase the quality and reach of the healthcare sector in the country, industry bodies and stake holders are expecting some major changes in the 2025 union budget. The key expectations are as follows:

  • The industry bodies expect the government to bring the total healthcare expenditure to 2.5% of the GDP. In 2023-24, the total healthcare expenditure stood at 1.9% of the GDP. This can be a major spending boost and propel healthcare stocks higher if granted.
  • Analysts are expecting increased spending under the Pradhan Mantri Jan Arogya Yojna (PMJAY). This would mean the inclusion of private hospitals and more treatments under its coverage.
  • The budget for 2025 is expected to provide some relief in the form of lowering GST on key pharmaceutical products and equipment.
  • Industry bodies are also expecting an increase in the amount of insurance premiums that can be deducted while filing income tax returns.

Conclusion

Healthcare is more than just a business for the government. A good healthcare sector ensures well-being and a healthier society. However, investors and traders are concerned about how the budget would impact the healthcare companies and in what direction the healthcare index will move. Always remember that markets can be highly volatile on the budget day and a few weeks after that. So, trading must be done with caution.

DISCLAIMER: This blog is for educational purposes only. This is not investment advice.

Kinshuk

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