‘Why would you not be bullish?’ — Tata MF’s Rahul Singh makes the big case for healthcare

India’s healthcare sector offers one of the most compelling long-term investment opportunities, thanks to a persistent demand–supply gap, rapid payback on new capacity, and insulation from macroeconomic swings, according to Rahul Singh, CIO of Tata Mutual Fund.

“Healthcare is one sector in India where there is demand–supply gap… in quality healthcare in both hospitals and diagnostics,” Singh told N Mahalakshmi on The Wealth Formula podcast. Even in state capitals, “there are no good hospitals… people have to go to other state capitals” for chronic or critical treatment. “On paper, there are good hospitals, but you don’t get good advice,” he said.

That shortage creates pricing power, though Singh stressed, “not that you want to extract pricing power in a thing like hospital.” Ageing demographics, rising insurance penetration and growing middle-class spending are all strengthening demand. “The same class which is going to be spending on travel, tourism and hotels and luxury… is going to be spending on healthcare,” Singh said.

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He noted a sharp improvement in sector economics: “The hospitals earlier used to take three years to pay back… now it’s happening in one and a half years.” Faster occupancy ramp-up is turning capital-intensive projects into value generators. “The best return… gets made when a company is able to reinvest its cash flow… into a business which generates returns higher than its cost of capital… in hospitals it has become faster.” Steady-state ROCs are now in the “high teens, if not 20%,” with diagnostics “much, much higher.”
Competition in diagnostics, heightened during COVID by online aggregators and easy funding, has “settled down already” as capital has dried up. “There is a gradual… steady inflationary increase in prices” and “the industry needs a lot of consolidation… an opportunity.” Singh argues listed brands hold an edge in a space where “you don’t want to compromise on quality.” Organic growth of 10–15% plus market share gains can drive 15–20% annual growth “for many, many years.”

Singh frames healthcare as “a thematic, yes… these are pockets you would want to buy and play for 3–5 years,” not near-term earnings upgrade or re-rating stories. The attraction, he said, lies in “a non-cyclical 15% CAGR… not dependent on economic cycles, not dependent on government policy, not dependent on interest rates, not dependent on what’s happening with the US or trade war… with much lower risk.”

While valuations in diagnostics are higher than hospitals (Lal Path Labs trades at about 55 times trailing earnings) Singh says the premium reflects returns and brand strength, much like FMCG companies. “There is a value for that… you may not be able to justify it fully [via DCF], but there is a premium.”

For investors, Singh said healthcare offers a way to “cut out the noise” from political, macroeconomic and credit-cycle uncertainties. “Things have to be simpler for you to also sometimes make money… there is a place in the portfolio for such names.”

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