Covid is back. Should you bet on pharma funds ? | Economic Times

Pharma funds are staging a comeback. After slipping on the return charts in the last six months, pharma funds are topping the charts once again in the last one month. With more than 10% returns in one month, the funds have toppled international sector funds and energy funds which were the toppers in the near term. Fund managers believe that the second deadly wave of covid-19 in India has surely bought the spotlight back on pharma funds. The outlook for the sector is good but volatility will continue in the space. Is this a good time for retail investors to invest in these schemes? “The second wave of Covid has created opportunities for some companies for sale of therapeutic products. Also for some companies, there is opportunity to participate in vaccines. Except for a few pockets, valuations are closer to long term averages,” says Chirag Dagli, Fund Manager, DSP Investment Managers.In spite of the big run up in the pharma sector, fund managers believe that the outlook of pharma stocks is still positive. “Despite outperformance over the last 1 year, Pharma has still underperformed the broader markets over 5 years. With fundamentals improving in the largest market of US generics, the outlook on exports remains sanguine. Driven by recovery in acute care, Indian formulations market is also expected to grow post a dip in FY 21. APIs are in a sweet spot to gain share from China,” says Chirag Dagli.Scheme name1-month returns (%)6-month returns (%)1-year returns (%)DSP Healthcare10.2216.9961.84 ICICI Pru Pharma Hlthcr & Diagn10.7818.04 52.51Mirae Asset Healthcare11.3411.3451.53S&P BSE Healthcare Index has offered 12.49% returns in the last one month and experts believe that there is room for better performance in many stocks in the index. Apart from that mutual fund houses say that the AUM in pharma funds has also seen a rise in the last few months. “Defensive sectors such as pharma and healthcare have seen increased interest from investors in recent months on expectations of some delay in economic recovery. From a long term perspective as well, the healthcare sector is attractively placed given structural tailwinds like increased government spending on healthcare and better growth expected in exports for Indian Pharma companies,” says Radhika Gupta, MD & CEO of Edelweiss Asset Management Limited. Now the big question- should retail investors join the party? Fund managers believe if investors have the risk appetite for sectoral funds, they can take exposure in a staggered manner. “Investors can invest in funds which give exposure to India and global healthcare companies in a staggered way over next 6 to 12 months. They should do so only if they are willing to stay invested for over 5 years and above,” says Radhika Gupta. Mutual fund advisors believe that investors with an aggressive risk appetite only should invest in these schemes. “Your general diversified schemes also have some exposure to pharma stocks so you would already have some exposure there. Sector funds are for those investors who can take high risk and can time their entry and exit in the stocks or schemes,” says Puneet Oberoi, Founder, Excellent Investment Advisors, a financial planning firm based in Delhi.