Don't forget to rate the article

Currently after cement and petrochemicals, the pharma is much a touted as a sector which is expected to experience a rally in the near future. Traditionally also the Indian pharma sector has attracted good valuations. Due to its export orientation, low costs and the product patents rather than process patents in force, this sector has done well for itself in India as well as overseas. A handful of Indian pharma companies have also taken to preparing for the eventual product patent regime by investing in research & development and getting patents for their new new molecules and new delivery mechanisms.

However, the past one year the dip in the sensex has also taken a toll on the pharma frontliners. After the ICE sector rush, it was the turn of old economy stocks and then the petro and cement sector, somewhere along the line, the pharma sector got left out of the rally. But now the market seems to be revising its opinion. Evidence of this revision in opinion is indicated many ways. While the pharma sector had underperformed the markets last year with nearly flat sales growth, the second quarter has seen pharma companies bounce back with largely impressive results. The pharma sector has seen a near 20 per cent jump in sales with the bottomline growing by over 30 per cent in the second quarter. Apart from the steady growth, the highly fragmented sector (with over 20,000 companies) offers a tremendous opportunity for consolidation with mergers and acquisitions. This would surely add to returns from the sector in the long run. MNC (multinational) pharma scrips have been firming up prices on news of relaxation of drug price control (DPCO) norms and select Indian pharma have been firming up, reckoning that the budget would have sops for R&D and provisions for relaxation of DPCO.

But instead of taking direct exposure, we recommend that investors take indirect exposure in this sector through the 4 pharma funds that are listed. Despite a discouraging performance by three pharma funds since their launch in 1999, fresh investments have continued to pour in, largely driven by the long-term potential for the sector. Assets under management for three funds have seen an average growth of 30.52 per cent in the current year despite sharp erosion in net asset values. For instance, the pharma funds from Kothari Pioneer, UTI and SBI Mutual Fund have seen an average fall of 32.26 per cent in the year-to-date period (ended October 20, 2000). Though the annual returns of the pharma funds are still in the negative range, the quarterly, monthly and weekly returns have moved into positive territory. This is also reflected in net asset values of the funds which have been appreciating. In fact the NAV’s of both KP Pharma and SBI Magnum Pharma ruling below par last year have surfaced above the face value.

Of the four pharma funds listed, three are dedicated to pharma and the Alliance Buy India fund has a diffused focus, with 43% of the portfolio in pharma and 29% in food and beverage companies. Of the four, Kothari Pioneer is the one which has given the highest appreciation in the last quarter, followed by UTI Pharma and Healthcare and then SBI Magnum and Alliance buy India, in that order. The launch timing of the first three funds is more or less spread across 99, with Alliance buy India, in Jan 2000. Which is why perhaps it has the lowest NAV, as it entered the market when the market was near peaking. The portfolio of most of the funds is more or less a mix of Indian and MNC pharma companies. Currently, all these pharma funds are available at close to par values and offer a good buying opportunity. For the investor who prefers a diversified risk profile, perhaps the Alliance India fund with Pharma and ITC would represent a good investment opportunity for appreciation,

Comparison of performance - 4 schemes of SECTORAL-PHARMA Sub-group

Aru Srivastava

Feedback

Rate this article