Pharma funds back in the spotlight as COVID-19 cases surge

Over the last 10 years, the S&P BSE Healthcare Index averaged a return of 14.38 percent. But in contrast, the index delivered a staggering return of 54.46 percent in 2020 alone. While the pandemic highlighted the healthcare sector last year, India is currently in the midst of a deadly second COVID-19 wave. This is likely to push investors to put substantial money in the sector again. Here’s all that you need to know about investing in pharmaceutical and healthcare funds in current times. 
Focus on healthcare

The domestic pharma industry is poised to grow at a CAGR of around 8-11 percent during FY 2020-2023. Capitalising on this growth, fund houses like Axis and ICICI have recently launched their own Exchange Traded Funds (ETFs) tracking some of the largest healthcare firms in the market, which include hospitals, diagnostic and research entities and pharma companies. 

The renewed interest in healthcare comes at an intersection of dire need of strengthening India’s medical infrastructure, along with the sharp growth of the healthcare industry, which has grown at a CAGR of almost 22 percent since 2016.

Coupled with policy interventions and increased government expenditure on the sector, many financial analysts are extremely positive about investing in the sector in the long run. Analysts also consider pharmaceutical funds to be relatively stable as compared to other thematic funds. However, considering cyclical impacts and market corrections, the sector is expected to remain volatile in the short run and deliver muted returns as compared to last year. 

Extraordinary situations, extraordinary returns

Despite the fact that the healthcare industry remains a solid, defensive sector that experiences relatively less market volatility as compared to other thematic funds, a Delhi-based investor warns against concentrating your funds on a specific theme. “These are extraordinary times, and while my investments in the pharma sector have delivered great returns, they should only form around 5-10 percent of your portfolio. Once the situation gets back to normal, the returns will dip. So, remember to allocate your money accordingly,” he noted.