Even though markets have been in turmoil due to the COVID-19 crisis, it is proving to be positive for the pharma stocks. The Nifty Pharma index has surged over 34 percent just in the last 1 month as compared to an 18 percent rise in the Nifty50 index.

This rise could be a result of an increased perception of a lenient FDA. According to a recent report by Jefferies, 11 facility clearances in the last 40 days has driven the perception of a lenient FDA. The brokerage also expects the USFDA to clear most of the remaining warning letters in another 18 months.

The increased number of clearances is led by clearance of backlog by FDA, increased inspections in 2019-20 and better disclosures by companies, the report added. It also noted that earlier less than half of the inspections/clearances were disclosed as compared to over 70 percent now.

The boost in facility clearances across companies is a positive, Jefferies further said, adding that this warrants multiple re-ratings.

"While pharma is our preferred defensive, we maintain our view that FDA inspection outcomes will continue to be determined on a case-by-case basis led by facility/inspector and this risk remains. In fact, recent trends are similar to what has been seen in the past 18 months and adverse outcomes are worse off than in 2018," the report stated.

While most of the clearances are procedural and in line with expectations, two took the brokerage by surprise, the report mentioned.

Aurobindo Unit IV clearance was a positive surprise, however, Sun Pharma's Halol OAI (Official action indicated, usually followed by Warning letter) was a negative surprise given that the company had received product approval in January and it is a key injectable plant with shortage products.

Historically, inspection trends saw improvement in 2018 with only 6 percent of inspection getting Official Action Indicated (OAI) driving expectation of better outcomes. 2019 though saw a reversal with over 10 percent of inspections resulting in OAI, explained the brokerage.

Jefferies added that clearance delays will impact Lupin and Aurobindo the most. Its preferred picks remain Sun Pharma and Syngene.