MF Tracker. Pharma funds clock mixed returns

The Nifty Pharma index and the BSE Healthcare index registered multi-year lows in early October 2019, but made a near-term rally over the past couple of weeks. However, the pharma indices are not out of the bear’s grip. The performance of equity-oriented pharma sector funds too have been lacklustre.

That said, over the past year, the Nifty Pharma index and S&P BSE Healthcare index were down by 5.5 per cent each, while the pharma funds category managed to post marginal positive returns of 0.3 per cent.

What went wrong

After a commendable performance until 2015, the Indian healthcare sector has been facing multiple headwinds in the domestic and global markets. Regulatory overhang and price erosion of primary drugs in key markets have weighed on the stocks of Indian pharma companies.

Companies focussing on the US market have been particularly hit hard, owing to stringent action by the US drug regulator Food and Drug Administration (USFDA). Structural issues in the US, including rising competition, consolidation of channel partners, price erosion, and lack of new opportunities also made things worse.

Better times

However, the performance in recent quarters indicates a turnaround in the sector’s fortunes. Subsiding regulatory woes, healthy revenue growth in key markets and recovery in domestic market, post the GST disruption, are key positives.

We take a look at how pharma funds fared over the last one year. Tata India Pharma & HealthCare delivered 5.3 per cent returns over the past one year and tops the chart. The fund has high exposure to stocks like Dr Reddy's Lab and Sun Pharmaceutical Industries, but the allocation to stocks of Divi’s Lab, Abbott India, Ipca Labs and Apollo Hospitals has helped it contain the downside well in 2018 and record gains in 2019.

Moreover, it has a compact portfolio of 15 stocks in which the weight of the top five is almost 50 per cent. Another fund that delivered 4.5 per cent returns over the past one year is Mirae Asset Healthcare, which was launched in July 2018.

It has a well-diversified portfolio with 25 stocks in its kitty.

Similarly, the fund holds outperformers like Divi's Labs, Ipca Labs, Dr Lal Parthlabs, along with Sun Pharmaceutical, Cipla and Lupin.

Nippon India Pharma — which had delivered a positive return of 3.6 per cent in 2018, while the benchmark had slumped 5.3 per cent — struggled to outpace its peer funds this year. However, the fund continues to outshine its benchmark index, the S&P BSE Healthcare TRI, by a marginal 4 percentage points.

ICICI Prudential Pharma Healthcare and Diagnostics (P.H.D), which was launched in July 2018, has 30 stocks and the top five concentration is 37 per cent.

In over a year, the fund has been able to attract more AUM than its peers. SBI Healthcare Opportunities and UTI Healthcare funds have delivered a negative return of 2.5 per cent each over the last one year.