Pharma funds still under the weather

Regulatory action and competition in the US market have hit revenues

The strong bull run in S&P BSE Healthcare that commenced in early 2012 came to an end in late 2015. Since then, the index has been trending down. Pharma funds, which are benchmarked against S&P BSE Healthcare and Nifty Pharma indices, have taken a knock too.

There are four funds in this sector, namely Reliance Pharma, SBI Pharma, Tata India Pharma & HealthCare and UTI Pharma & Healthcare. Apart from Tata India Pharma & HealthCare, which was launched in December 2015, other funds have a track record of more than a decade.

Pharma as a category has delivered good returns over the long run; an average return of 14.8-14.9 per cent over the past five and 10 years. This was thanks to the good years of 2009-10 and between 2012 and 2015.

But in recent years, the category has underperformed broader market indices. Regulatory action against many domestic pharma companies and severe competition in the US resulted in price erosion and moderated revenue. The category has given a negative return of 4.4 per cent and has gained 2.4 per cent over the past one and three-year periods respectively. Despite underperforming as a category, the individual performances of the pharma funds have been better than their benchmarks.



Outperforming benchmark



The S&P BSE Healthcare has tumbled 10.4 per cent and declined 2.4 per cent over one and three-year periods correspondingly. The Nifty pharma index has plunged 17.7 per cent and 6.9 over one and three-year periods respectively.

The funds have delivered three-year returns in the range of 0.4 to 3.5 per cent and capped their losses better over the past year, delivering between negative 7.5 per cent and negative 2 per cent.

SBI Pharma and UTI Pharma & Healthcare have relatively higher exposure to mid- and small-cap stocks while Reliance Pharma and Tata India Pharma & HealthCare are broadly tilted towards large-caps. UTI Pharma & Healthcare appears to be well-diversified, with 26 stocks in its portfolio while others carry between 19 and 21 stocks. SBI Pharma and Tata India Pharma were laggards over the past one year with negative returns of 7.5 per cent and 6 per cent, respectively. The reason could be higher allocation towards underperforming stocks such as Divi’s Laboratories and Sun Pharmaceuticals.

On the other hand, Reliance Pharma has declined by a lower 2.3 per cent in the last one year and has beaten others over three-year periods by delivering 3.5 per cent gains.

Allocation towards better performing stocks such as Abbott India and Biocon could have helped the fund outperform its peers.

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