Unit holders can retain their investments in Reliance Pharma Fund. The scheme has consistently delivered superior returns over the last five years, outperforming both its benchmark and peer pharma funds by a considerable margin. Fresh investments, however, can be avoided at this juncture, given the sector's mixed prospects.
While the growth drivers for the Indian pharmaceutical sector are still in place, the upside potential would be stock-specific and not broad-based as before. Besides, increase in compliance risks and strategies by innovator companies to ward off exclusivity may keep Indian companies from benefiting from the generics opportunity.
Suitability and risks
With the fund having given significant returns in the last couple of years, investors can consider taking some profits off the table, particularly so if one's investments in the fund make up more than 10 per cent of one's total equity fund holdings.
Besides, the fund doesn't enjoy a low risk profile despite its focus on the defensive pharma sector. Being a sector fund, it comes bundled with high risk as its fortunes are specifically linked to the pharma industry's dynamics and performance.
Sector undercurrents
While the growth opportunities for the Indian pharmaceutical sector are attractive — this year alone branded drugs worth about $40 billion are expected to come off patent — it remains to be seen how the Indian drug companies swing it in their favour. With increasing competition, the extent of profits could come down. The much-awaited generic Lipitor approval for Ranbaxy is a case in point. Pfizer's aggressive strategies to somehow retain share of Lipitor in addition to Ranbaxy's last minute surprise profit-sharing tie-up with Teva Pharmaceuticals clipped the Indian drug maker's profit potential from the generic launch.
Besides, the sector's valuations are primed for growth. This leaves little scope for negative surprises, a common occurrence given the complex workings of the industry where prospects are subject to regulatory intervention, mergers and acquisitions and litigation as well.
Performance and portfolio
Reliance Pharma contained its NAV slide last year to under 3 per cent, beating the BSE Healthcare Index' negative 6 per cent. On a three-year and five-year basis too, the fund has outpaced its benchmark and peer funds, consistently delivering superior returns. During this period, its returns compare favourably with diversified funds' category average too.
While a good part of its outperformance was driven by the pharma sector's strong fundamentals, the fund's ability to spot the right stocks also merits a note here. From a predominant mid- and small-cap bias two years ago, the fund's current portfolio sports a large-cap focus (market capitalisation above Rs 10,000 crore).
These stocks make up one half of its portfolio, while mid- and small-caps make up the other half. This may stand the fund in good stead considering that large-cap pharma companies are better positioned to battle the rising odds in the sector.
Its portfolio, nonetheless, continues to sport a mix of companies across the pharma value chain — companies with a strong footing in domestic formulations, complex generics, CRAMS, bio-generics as well as MNCs and their Indian subsidiaries.
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