Should you look at investing in pharma funds?
What if we say that a pharma fund has given 65% in the past one year? Donít believe us? Mirae Asset Healthcare Fund has given a return of 65.05% in the past year. This is not a one fund wonder. ICICI Prudential Pharma Healthcare and Diagnostics Fund has provided its investors with 63.4% in the past year while Nippon India Pharma Fund has given 57% in the same time. So, what has been driving these funds?
Indian pharma industry least affected
As an investor, you must know that the covid-19 has led to decline in business for most industries in India. However, for pharma things have been looking up. For the industry, there has been improvement in business outlook for Indian markets and the US markets.
You must understand that the industry exports most of its products and this contributes to two thirds of the companiesí revenues. There have been increasing approvals for Indian companies and the currency upswings have been favorable. The pharma companies have been changing their products to suit the US markets. Data suggest that quarterly sales of pharma products in the US has been more than $ 1.7 billion. All this has added to earnings visibility for the pharma industry. So, brokerages have upgraded the price earnings (PE) multiples for most stocks in the sector. Thatís the reason for most of the upswing in the stocks.
When it comes to Indian markets, manufacturing had declined to 50% in the April-May months. Now, things are back to normal and capacity utilization is good enough for the companies to serve the Indian markets. A report by Credit rating agency, India Ratings and Research (Ind-Ra) suggests that the Indian pharma industry is set for an upswing of 3%-5% this financial year regardless of the pandemic. Ind-Ra states that the increasing number of covid-19 cases will help improve revenues for the pharma companies. New product launches that had been deferred will be considered by pharma companies now that the economy is opening up.
May be this is the reason why domestic mutual funds have increased their investments in the pharma sector. According to Motilal Oswal, institutional investment in the industry has hit a 40-month high. The weightage of pharma stocks in the portfolio of the domestic mutual funds has increased by 2%.
Another point is that Glenmark Pharmaceuticals is the first Indian company to get the approval for a drug that can be used to treat coronavirus. Favipiravir is the drug that will be manufactured and marketed by the company for the treatment of moderate symptoms of covid-19. If the drug proves to be effective, Glenmark will enjoy first mover advantage. The company has started manufacturing the drug. It is expected to be in stores by next week and will likely be available pan-India. Favipiravir is moderately priced at Rs. 103 a tablet. The complete course of medication will cost Rs 3,500.
All these factors are in favor of the Indian pharma sector. Also, going forward, the industry will do well given the higher number of population aged 50+ in India and the need for drugs for the diseases that affect this society. So, the pharma industry seems to be a reasonable long-term investment.
If you are looking to invest in the industry, you can consider pharma funds.
Pharma funds such as the Nippon India Pharma Fund, Tata India Pharma & Healthcare Fund, UTI Healthcare Fund and SBI Healthcare Opportunities Fund, have given more than 15% in the last three years.
|Fund||AUM||1-year return||3-year return|
|Nippon India Pharma Fund||Rs. 2991.57 Cr||57%||20.41%|
|Mirae Asset Healthcare Fund||Rs. 581.1 Cr||65.05%||NA|
|ICICI Prudential PHD Fund||Rs. 1460.01 Cr||63.4%||NA|
|DSP Healthcare Fund||Rs. 412.35 Cr||58.75%||NA|
|UTI Healthcare Fund||Rs. 474.52 Cr||56.41%||17.08%|
|SBI Healthcare Opportunities Fund||Rs. 1138.75 Cr||55.21%||15.7%|
Since these are theme-based funds, it is good for investors to limit allocations to under 10% of their portfolio. The investments should be made from a 3-5-year horizon. If you have a medium risk appetite, you can invest using the Systematic Investment Route (SIP) over the next few months. This will help average out the volatility in the stocks.
For investing in pharma funds or any investments you would like to do, contact us on [email protected] or call Pradeep Pillai on 9891441777.