The BSEHC stretched its out-performance over the broader indices by almost 15% on a YTD basis. After remaining a laggard during the first half of 2014, pharma stocks have staged a comeback in the second half on the back of rejuvenated buying, contrary to our expectations due to – 1) consolidation in the cyclical space after the swift rally on hopes of progressive steps towards ground changing reforms by the newly elected Modi government and 2) consensus beating numbers by most pharma players on the back of robust US traction and a visible strong recovery in domestic formulations. Strengthening of the US dollar is also benefiting the sector. The BSEHC is currently trading at ~53% premium to the Sensex forward PE. This, we believe, is on account of a re-rating of the entire pharma pack. However, though the sector remains in a sweet spot on the back of better growth visibility, healthy margins & return ratios and delevered balance sheets, the sharp run up in the last few months has rendered valuations for most players a bit stretched (despite the current correction) on an FY17 basis. We expect a consolidation in the sector as the re-rating phase seems over. We expect pharma companies under our coverage to register a CAGR of 18%, 20% and 24% in revenues, EBITDA and PAT in FY14-17E on an aggregate basis.