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Even as India Inc witnessed a slow rise in revenues and profits in the last five years, defensive themes such as healthcare and consumer goods bucked the trend. Despite significant outperformance in the last five years, better growth visibility and risk aversion may continue to favour defensive themes for the foreseeable future.
Steady demand due to increasing disease awareness and a weak rupee may continue to benefit pharma companies in the medium term. Though a stringent drug pricing policy, if finalised, may risk growth in the near term, higher volume growth may compensate for the price cuts.
SBI Pharma fund can be considered by investors who would like to bet on the prospects of the healthcare sector. The fund outperformed the BSE Healthcare across all three time periods — one-, three-and five-years. Though the fund lagged its peers over a five-year timeframe, it raked in the highest gain on a one- and three-year basis.
Portfolio and strategy
Reducing portfolio concentration by increasing its holdings from just 8 stocks in February 2008 to 14 stocks by September 2009 helped the fund in its recovery process. Pruning exposure in Dishman Pharma, Wockhardt and Sanofi India and buying into stocks such as Biocon, Glaxo SmithKline, Cipla and Wyeth aided the fund’s performance.
The fund started on its great run from early 2011. Exposure to stocks such as Divi’s Labs, IPCA Labs, Wockhardt and Lupin helped the fund surpass benchmark returns. A turnaround in Wockhardt’s operations resulted in a five-fold jump in its stock price. Operating margin improvement driven by a strong pick-up in custom synthesis business led the impressive rally in the stock of Divi’s Labs.
On a one-year basis the fund delivered 28.8 per cent, higher than the 24.8 per cent gain for the benchmark. Over a three-year timeline, SBI Pharma clocked 19.8 per cent gains compounded annually, 3.6 percentage points higher than the BSE Healthcare. Trimming exposure in the stock of Opto Circuits, which tanked by over 70 per cent in the last one year, proved helpful.
Over the past three years, SBI Pharma has done better than peers such as Reliance Pharma and UTI Pharma & Healthcare.
The fund currently has 17 stocks in its portfolio. The top 10 stocks account for over 85 per cent of the total assets. With an average market capitalisation of about Rs 30,000 crore, the fund has a higher skew towards large-cap stocks.
Over the last six months, the fund has increased holding in stocks such as Wockhardt, Dr Reddy’s, Aurobindo Pharma and Sun Pharma. It has reduced exposure in stocks such as Cipla, IPCA Labs, Divi’s Labs and Torrent Pharma during this period.
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