Healthcare fund tracker – The Hindu BusinessLine

Equity markets are approaching a semblance of stability now after several bouts of volatility that started in September 2024: the time when US presidential elections began impacting markets. Post Operation Sindoor, the latest frenzy can be seen in defence stocks which was earlier dominated by consumer durables benefitting from tax breaks in the Budget. While sector investing commands a higher-than-normal risk appetite, the broader market volatility elevates the risk component for investors at the moment.

Being seen as a defensive sector, healthcare investing assumes prominence in the current context of heightened volatility. The undercurrents are not indicating significant headwinds in the sector with opportunities for earnings growth intact. We elaborate on the pros and cons of investing in healthcare now, and the funds available to take exposure.

Why healthcare?

The healthcare segment consists primarily of pharmaceuticals followed by hospitals, labs and diagnostics. With each subsector following a different trajectory, healthcare exposure offers a degree of diversification that is crucial to investing.

The pharmaceutical sector is on a strong footing in exports and domestic markets. The US tariff overhang is a concern but with strong leadership in generics, and generics being a cost take out tool for US healthcare, the impact should be limited. The companies have developed a speciality medicine recourse to diversify from a generic heavy exposure earlier. Manufacturing and research outsourcing are also favouring domestic companies.

Hospital sector continues to gain from lower government outlay in direct healthcare delivery. But, by increasing support for a universal health insurance programme, the hospital sector can expand on capacity while maintaining a fair handle on pricing growth. Labs and diagnostics are benefitting from increasing unorganised-to-organised shift, but competition based on pricing is a headwind to the sector.

Healthcare funds

The segment is well populated with 17 active funds operating currently. While a few have been in operations for over 15 years, around 5-6 funds have started operations in the last one year, and an equal number have started in the 2018-19 period. Legacy is an important consideration for fund comparison.

At the segment level, BSE Healthcare has outperformed BSE Sensex in the last five years including the last one year. Post-Covid, the recovery in US markets complimented the domestic strengths to drive the pharmaceuticals and hospitals sector. The broader index however, is catching up, with BSE Sensex outperforming year to date.

The table outlines the performance of various funds. We have listed funds with more than 5 years of operating history for comparison.

We used daily 5-year rolling returns compared to the benchmark, BSE Healthcare total returns index. The fund alpha, fund average rolling return minus benchmark, is used to measure performance. Also, the historical frequency of beating the index measured by daily beat percentage (ratio of days beating the index) is also provided. This is reported for 3-year and 1-year average rolling returns for the last 10 years.

As can be seen, DSP Healthcare has beaten the benchmark average 5-year rolling return by 3.6 per cent; 28 per cent compared to benchmark’s 24.4 per cent returns. This is followed by ICICI Pru Pharma Healthcare and Diagnostics fund and Nippon India Pharma fund.

But considering legacy adjustments, Nippon India fund can be considered for all weather outperformance. The fund has close to 20 years of operating history compared to DSP Healthcare or even ICICI Pru’s 6-year history. More importantly, the last six years is the period that pharmaceuticals recovered from a punishing US generic pricing regime that started in 2016 and ended in 2019-20 period. Despite a lower alpha, Nippon India outperformed benchmark’s average 5-year rolling return of 13.4 per cent by 3 per cent, to return 16.4 per cent in the last decade.

Fund composition

The fund category as on April-2025 end comprises of 70 per cent in pharmaceuticals, 9 per cent in hospitals and 6 per cent in labs. Nippon India is marginally overweight pharma with 73 per cent allocation, led by Sun Pharma at 14 per cent (12.8 per cent category average). Divi’s riding on US Biosecure act (research outsourcing moving away from China) has a weight of 10 per cent. Among hospitals, Apollo (5.5 per cent) makes it to top 10 and so does Medplus Health (3.5 per cent) in pharma retail and Vijaya Diagnostics (3.4 per cent) in labs.

DSP Healthcare sways from the fund weights with pharma allocation only at 61 per cent and services at 28 per cent. The industry leader Sun Pharma is underweighted at 9.6 per cent but the fund utilises Cohance Lifesciences (Suven Pharma earlier) to ride the CDMO wave with leading weight of 9.7 per cent. ICICI Pru is overweight in pharma (76 per cent) and underweight in services (7 per cent).

Published on May 31, 2025

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