Return Tracker. Pharma funds miss the party

Indian equities have had a brilliant run so far in 2017 with bellwether indices Sensex and the Nifty scaling new peaks. But not all themes have participated in the rally.

Pharma is one theme that has been left out of the party. An important reason for this is growth concerns in the key market, the US, on two counts. One, supply disruptions to the US by select Indian pharma companies on account of regulatory action on their manufacturing facilities, which led to cessation of exports from those facilities. Two, severe competition in existing drugs in the US and the resultant price erosion that moderated revenue from this market. As a result, many pharma stocks have been in a free fall, evident from the performance of the BSE Healthcare Index, which has shed over 9 per cent in the past year.

How have pharma theme funds fared during this period? Pharma funds as a category have managed to hold up better compared to the BSE Healthcare Index. These funds have shed between 3 and 8 per cent over the last one year, lower than the 9 per cent for BSE Healthcare Index.

SBI Pharma Fund, which was the topper until a year ago, lost the most over the last 12 months. The fund’s NAV has declined by over 8 per cent in the past year.

The scheme’s weak showing over the last three months has been a drag on its one-year performance. The scheme’s heavyweight stocks Lupin and Strides Shasun have shed over 25 per cent and 22 per cent in the last three months. And this has had a negative effect on performance.

Interestingly, Reliance Pharma Fund raced ahead of SBI Pharma to top the list over a one-year time frame.

The fund has managed to contain the fall in NAV at less than 4 per cent. This was helped by its stock choices.

For instance, the scheme’s top bets such as Cadila Healthcare (6 per cent gain over three-month period) and Sanofi India (2 per cent decline) survived the storm and thus helped contain the fall in NAV better than the benchmark and peer funds.

Likewise, UTI Pharma and Healthcare Fund moved up the rank on a one-year basis, thanks to stocks such as Natco Pharma (94 per cent), Shilpa Medicare (44 per cent), Piramal Enterprises (90 per cent) and Alkem Laboratories (53 per cent). Tata India Pharma and Healthcare Fund, which is the new kid on the block (launched in December 2015), lost 8 per cent in the past year, much lower than its benchmark, the Nifty Pharma, which shed over 14 per cent during the same period.

Though the prospects of large Indian drug makers are largely contingent on the dynamics of the US market, the steep correction in the stock prices provides a good buying opportunity in select quality pharma stocks.

And buying into a pharma fund with a good track record can help capitalise on the opportunity once the tide turns favourable.

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