ICICI Prudential Mutual Fund and Mirae Asset Mutual Fund are launching thematic funds investing in health care and allied sectors. The domestic health care sector is the flavor of the season as stocks underperformed broader indices bringing valuations down to relatively more attractive levels, while the sector also reflects a play on the demographics and growing consumption theme.
Nifty Pharma index dipped -6.65 percent as compared to Nifty 50’s steady rise of 12.04 percent this past year. In a three-year time frame, pharma underperformed -7.76 percent as compared to 10.81 percent rise in the bellwether Nifty 50.
The performance may not be strictly reflecting the future growth because some new sectors like diagnostics are still not part of the index. The composition of the Nifty Pharma index is largely in generics and pharma products. Hospitals, too, where the consumption story is running strong is not well-represented in the index.
Still fund houses believe that there is a structural growth story developing around pharma and health care. The future of healthcare revolves around the growing demographics and the need for better pharma and health care services. Health care is also a part of the growing consumption theme particularly for health services such as diagnostics and hospitalization day care.
Healthcare has traditionally been one of the defensive sectors. Over a 10-year period, the Nifty Pharma index delivered a return of 9.98 percent similar to the broader indices 9.13 percent.
But over the past three years or so the sector has gotten beaten down due to compliance issues particularly with the US FDA. Many stocks in the health care, particularly in the generics space, have seen their stock values at very low levels lately.
Existing pharma sector funds have seen a mixed performance. Returns range between +9.9 to -10.3 percent. Sectoral funds in general have a higher volatility. They are thematic funds that invest in select sectors and generally have a higher risk. Though the sector has potential fund managers will have to focus on superior stock selection to generate outperformance.
