Themes & Sectors



What’s the idea?

Where there is life, there is also sickness. Yes, this is not a very pleasant thought. But it gives sectors related to healthcare – pharmaceuticals, diagnostics labs, hospitals, insurance companies – their bread-and-butter.

The Indian pharma sector was once the stock market darling. In the past 3-4 years, though, the sector has fallen out of favour, on export woes stemming US FDA issues, falling margins and sliding ROEs. However, fundamental performance for pharma companies has been picking up. While the domestic market holds strong, pharma exports can also see improvement. FDA inspections are stabilising and the US is the largest export market for pharma companies. This generics export market can also grow as an increasing number of US drugs move off-patent over the next few years. This apart, the listed space has expanded to include related healthcare services other than only pharma.

Markets have already caught on to the better prospects, and healthcare has picked up in style since March 2020.

What does it include?

Sector funds are focused on a single sector, unlike a thematic fund that invests along a particular theme. Pharma and healthcare funds predominantly invest in pharmaceutical stocks, both export and domestic players. In addition, funds invest in diagnostic labs, chemical suppliers to pharmaceutical companies, hospitals, and insurance companies.

Fund Name Remarks
DSP Healthcare Fund Invests across market capitalisations and balances pure pharma companies along with other plays such as chemicals, life sciences and diagnostics. Also invests in overseas stocks such as medical equipment manufacturers. Relatively new fund.
Nippon India Pharma fund Long-established pharma fund that has performed well in earlier pharma cycles as well. Can take a focused portfolio approach with heavy weights to a handful of stocks, which can drive returns if these stocks rally sharply.

What’s the selection process?

For this sector, we looked for:

  • Funds that had a presence across different pockets in the healthcare space in order to maximise the play. Given that different segments within the overall healthcare space have different growth potential, spreading it out will allow better participation in any rally.
  • Funds that do not have too much overlap in portfolios. Since the bigger pharmaceutical names are common across funds, big portfolio similarities could mean duplication of the same strategy.

How should you invest?

You can invest in either or both the funds above. Since they share minimal overlap, holding both funds will still provide you different return potential.

Disclaimer: Sector and thematic investing is high risk. Invest in these only if you believe in the theme/ sector/ strategy. The funds/ETFs are drawn up based on their potential to deliver on the theme/strategy.  Your conviction in the theme/strategy and your risk profile and portfolio make up should determine whether to invest in these funds. To this extent, this short-listed set of funds is not advisory in nature. PrimeInvestor is a SEBI-registered research analyst firm. 

General disclosures and disclaimers

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