As a theme, pharma, and a bit more broadly healthcare, is no longer a narrow segment with very few companies. Over the past five-seven years, the healthcare sector has come to include pharma companies (domestic focused and export-oriented), diagnostic firms, hospitals, medical analytics providers, and retail pharmacies, among a few others.
The investment universe is fairly large and diverse, apart from being spread across market caps.
India’s rising longevity, increasing lifestyle and other related diseases, rising awareness of health check-ups, and expanding insurance penetration mean that there are opportunities across a range of stocks. Government incentives to pharma and healthcare companies is an added positive.
Many theme funds have been rolled out over the years on the pharma and healthcare theme. Some of them have been around for over 10 years.
HDFC Pharma & Healthcare Fund is the latest to join the bandwagon and the NFO closes today (September 28).
Before you make an investment call, here’s more on the theme and the new fund offering.
As indicated earlier, the pharma and healthcare segment is quite diverse. The S&P BSE Healthcare Index, for example, has seven sub-segments, with pharmaceuticals and hospitals topping the weightage. There are as many as 99 stocks – 6 large-cap, 14 mid-cap and 79 small-cap. Thus, the index is itself a somewhat multi-cap oriented benchmark.
Many factors work in tandem in favour of the broader Indian healthcare space.
Healthcare spends are increasing as Indians live longer with medical advances, low penetration of services and an increase in the aged population. The rise in chronic diseases has meant the repeated use of medicines and healthcare products.
Indian companies’ share in the US generics market has risen steadily over the years. Pharma companies also produce drugs on a large scale for other countries, and play a key role on innovation.
Government incentives such as the PLI (production-linked incentive) will encourage domestic pharma manufacturing.
HDFC Pharma & Healthcare Fund will have a multi-cap focus, true to the nature of companies in the theme itself.
What should investors do?
There are as many as 11 existing pharma and healthcare-related active funds. Six of them have a track record of over five years.
Most of them have done well in recent years and outperformed the S&P BSE Healthcare Index. In particular, Mirae Asset Healthcare, ICICI Prudential Pharma Healthcare & Diagnostics and Nippon India Pharma have robust track records over the years. Investors with a high risk appetite and a long horizon can hope to benefit from these funds. They can be part of a satellite portfolio of investors as diversifiers.
Timing is crucial in entry and exit from theme funds, and is a challenge for retail investors. The pharma and healthcare segment, too, can go through extended periods of downturn.
As a fund house, HDFC has a strong pedigree, with many schemes delivering solid returns over decades. However, given the availability of existing choices in the theme, investors can wait for HDFC Pharma & Healthcare Fund to develop a track record before investing in it.