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In the current equity market meltdown amid the pandemic, pharma funds have been the least impacted among equity-oriented mutual funds.
In the period between February 19 and April 3, 2020, the Indian bellwether index, the Nifty 50 TRI, plummeted as much as 30 per cent. Equity mutual funds followed suit. Among the equity-oriented fund categories, pharma funds corrected the least by delivering -11 per cent, followed by MNC (-23 per cent) and ESG funds (-26 per cent). On the other hand, banking, auto and infrastructure funds were hit the most, recording -42, -40 and -35 per cent, respectively.
Of the nine funds in the pharma category, Tata India Pharma & Healthcare, UTI Healthcare and IDBI Healthcare managed to contain the fall well during the period, with returns at -10, -10.1 and -10.4 per cent, respectively, while the sector’s barometer S&P BSE Healthcare Index (TRI) registered -14.3 per cent.
“After a difficult 3-4 years, pharma sector valuations have corrected and become attractive,” said Sailesh Raj Bhan, Deputy CIO - Equity Investments, Nippon India Mutual Fund. “Even in the recent crisis due to the coronavirus, the pharma sector is among the very few sectors with an improving growth outlook. Also, the institutional ownership in the sector is very low and rising investor interest will be a major positive for the performance of this sector.”
Multiple headwinds
After a commendable performance until 2015, the Indian healthcare sector faced multiple headwinds, both in the domestic and global markets. Regulatory overhang and price erosion in primary drugs in key markets have weighed on the stocks of Indian pharma companies.
However, the performance in recent quarters indicates a turnaround in the fortunes of the sector. Waning price erosion in the US market, traction in emerging market businesses, better performance in the domestic market and low volatility in the rupee aided revenue growth.
Among the constituents in the BSE Healthcare index, Panacea Biotec, Abbott India, Cipla, Cadila Healthcare and Ajanta Pharma were the stocks that fell the least (returns ranging from 8 per cent and -1 per cent) in the above mentioned period. Shalby, Wockhardt, Jubilant Life Sciences and Aster DM Healthcare were the laggards (returns ranging from -45 per cent to -60 per cent).
Will this trend sustain?
“The ongoing pandemic is unprecedented and has clearly put a large strain on the healthcare system across the globe,” said Vrijesh Kasera, Fund Manager, Mirae Asset Healthcare Fund. “While the cure seems some time away, overall sales of pharma companies will continue as it is, drugs being a necessity. Thus, while the majority of the other non-essential businesses are impacted, pharma companies’ sales will continue doing relatively better than other sectors.”
“In the current scenario, as selective surgeries to the extent possible are being postponed and there is a reduction in OPD consultations, there will be some impact on the utilisation and profitability. However, the sector impact remains limited versus the other sectors. It is too early to comment on the same, but the current pandemic does call for an increase in spending on healthcare, for both the government and consumers, to prepare and guard against any such event in the future,” Kasera added.
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