Data compiled by ET Intelligence Group show the top pharma MF schemes have outperformed the benchmark pharma indices like Nifty Pharma and BSE Healthcare Index as well as most individual pharma stocks.
Nippon India Pharma Fund, ICICI Prudential Pharma Healthcare & Diagnostics Fund, SBI Healthcare Opportunity Fund, Mirae Asset Healthcare Fund and DSP Healthcare Fund are the most popular pharma funds with the highest assets under management.
Analysis of MF scheme returns over the last one, two, three and five years shows the level of outperformance over the broader indices. There have been only a handful stocks that have been able to generate better returns than the sectoral schemes. For instance, pharma funds generated an average return of around 75 per cent over the past one year with only a few stocks such as Cipla, Aurobindo Pharma, Glenmark Pharma and Syngene International outperforming the funds.
Investing in individual pharma stocks can be a risky exercise given the uncertainty around regulatory approvals, drug approvals, legal settlements and price erosions. These risks tend to get neutralised to a large extent while investing in a basket of stocks cherry-picked by fund managers. It also diversifies the risk of individual stocks and helps one to take a view on the sector.
To be sure, investing in pharma funds still warrants taking a view on the sector. Pharma investors would remember that the sector failed to generate decent returns between 2016 and 2020. The pandemic changed the Street’s outlook on the sector. The view may continue to remain positive on the sector even as individual companies may face volatility. For investors, it will be difficult to choose which company would do better — an aspect wherein the pharma funds can be useful.
