Every average investor may have noticed that the pharmaceutical and healthcare sector has shown strong business performance during the pandemic. Companies like Pfizer and AstraZeneca have hit the vaccine jackpot, while a dozen others have benefitted from the increased use of medical products. But the improvement in R&D and the reach of healthcare has led to a growth in the pharma sector in the last few years, irrespective of COVID-19. So, the question in many minds is, is it a good time to invest in pharma mutual funds.
Seasons and cycles
The stocks often see a seasonal or cyclical pattern in a thematic pick like a pharma mutual fund. The pharma industry has been on a bull run for several months. So, the prices are no longer bargain buys. The cyclic upside may have already been reached if the investor looks at the short-term. A more diversified fund with good pharma exposure may be an alternative to an exclusive pharma fund to address the seasonal concerns. Similarly, pharma ingredient manufacturing stocks can also be added to the investor’s SIP mix.
The ETF route
Exchange-traded funds are also opening up with selected pharma and healthcare companies as the underlying index. Apart from diversified thematic funds, cautious investors can also invest in pharma through such healthcare ETFs.
For nearly five years till 2015, pharma stocks performed well on the strength of generic licensing. The surge since last year can be seen as a correction for the moderate period between 2015 and 2020. At a wider glance, the pharma industry has been one of India’s fastest-growing sectors in the last three decades. An investment in pharma mutual funds can be recommended for a 5-10 year time horizon combining both these observations.
Since 2016, the healthcare industry has been growing at a compounded annual growth rate of 22%. This is a positive long-term industry indication for investors looking to invest in pharma mutual funds. Besides, the government’s production-linked incentive schemes can boost domestic pharma companies. Despite being cyclical, pharma is seen as an evergreen industry. As per the Indian Economic Survey, the pharma industry is poised to grow from $42 billion in 2021 to $120-130 billion by 2030.
Despite the recent upsurge, you might need to exercise caution while investing in pharma mutual funds. Traditionally sectors like pharma are not recommended by experts unless in a diversified platter. Sectoral investors are seen as portfolio diversifiers by heavy investors or ones with specific industry expertise. However, for regular investors who are looking to invest in mutual funds online, a decent exposure to pharma through a balanced fund makes good sense.
You can do preliminary research on popular pharma stocks and mutual funds on the internet or any of a host of verified investment apps, such as Tata Capital Moneyfy App, and make a wise decision.