Do Pharma Funds Make Sense Now?

With the pandemic now being on the wane driven by the intensity of the vaccination drive, will the sector once again fade into oblivion? To answer this question, the article takes you back a little into history and places the current performance in a different perspective

Over the last 15 months the entire equity market has been performing exceptionally well. Barring the FMCG index all the other equity indices have been up by more than 50 per cent in the given period. Among these, the performance of the pharmaceutical sector has been the theme of the last year. In the first six months after the deep cut in the equity market in March 2020, there was a strong rush among investors to own pharmaceutical stocks, which pushed up their prices. Between March 23, 2020, and September 2020, the Nifty Healthcare index was up by almost 73 per cent compared to the Nifty 500, which was up by 49 per cent in the same period. Such a move in pharmaceutical stocks attracted lot of investors towards the funds dedicated to this sector.

Pharmaceutical-dedicated funds have attracted huge inflows in last six quarters. The cumulative asset under management (AUM) of these funds has increased from `6,000 crore at the end of December 2019 to `14,000 crore at the end of June 2021, increasing by almost two and a half times. Such a rise in AUM is contributed by both rise in the mark to market gains and net inflows.

Nevertheless, the momentum has slowed down after that for the Nifty Healthcare index. In the first six months of 2021, Nifty Healthcare has been up by 15 per cent compared to the 18 per cent growth seen in Nifty 500. Such underperformance was also observed in the change in weightage of pharmaceutical companies in the overall equity holdings of mutual funds schemes. Analyzing the overall weight of healthcare companies in equity-dedicated mutual funds, we see that after touching a high in the month of September 2020, their weightage has declined.