Covid 19 has brought the spotlight back to the pharmaceutical sector, which has been experiencing lackluster performance for a few years. The pharmaceutical sector is currently the best performing sector. Since the start of the year, the benchmark BSE Healthcare has increased by more than 40%. Since the March lows, the sector index has risen by more than 70%. Industry experts attribute the phenomenal growth of the pharmaceutical sector to the Covid pandemic which has given it more prominence.
“The Covid19 situation has provided the Indian pharmaceutical industry with the opportunity to play an even greater role in the global health space and the change has been positive with generally increased drug purchases boosting performance. Says Tanmaya Desai, Fund Manager, SBI Mutual Fund.
The pharmaceutical sector over the past three to four years has underperformed due to various headwinds in both India and the United States (accounting for 70-75% of the corporate and industry level).
Mutual fund managers believe pharmaceutical companies stand to benefit in the short term from Covid drug supplies. They say the pandemic has improved the export market growth prospects for the sector. The improved outlook should be reflected in earnings, which in turn will boost investor returns.
“While the sector’s returns may not be what we’ve seen over the past year, the earnings outlook looks good at least for the next 12-24 months and from now on we see double-digit growth in sector earnings (export driven short-term and domestic business conducted long-term) and returns largely reflect earnings growth, ”says Tanmaya Desai of SBI Mutual Fund.
“The sector looks good for investing over a 1 to 3 year horizon,” Desai adds.
Although the corona virus pandemic has drawn attention to the pharmaceutical industry, regulatory challenges for the industry remain unresolved, according to mutual fund managers. They believe that there are opportunities in certain actions.
“Each sector has a cycle. The pharmaceutical space has been lackluster in recent years. The covid pandemic has brought the spotlight back to the industry. We remain equity specific and see opportunities in selected stocks. The industry has faced regulatory challenges in recent years and this uncertainty quotient has not gone away. As investors, it is imperative to keep your eyes open and ears on the ground at all times, ”says Jinesh Gopani, Head of Equities, Axis Mutual Fund.
Actions with corporate governance issues or those plagued by regulatory issues should be clearly avoided.
“When selecting stocks for the SBI Healthcare Opportunities Fund, certain categories of stocks are clearly avoided – stocks where question marks have been or are being raised about the quality of management or corporate governance. of the company, and stocks where regulatory concerns are certain to affect the future profitability of the company, ”Desai says.
Being a thematic coin, the pharmaceutical sector carries a high risk for investors. Sophisticated investors who understand the industry well and are very risk prone may allocate part of their portfolio to the pharmaceutical sector. Investors shouldn’t rush into the rally just by looking at yields.