India’s pharmaceutical and healthcare sector has always been a strategic pillar of the economy, but recent global disruptions and domestic reforms have injected new life into this space. With rising healthcare awareness, ageing populations, and increasing medical infrastructure spending, investors are revisiting pharma and healthcare funds for long-term returns.
But is
it the right time to add this prescription to your portfolio? Let’s dissect the
theme.
What Do Pharma and Healthcare Funds Hold ?
Pharma & healthcare mutual funds typically invest in a mix of companies engaged in pharmaceuticals, diagnostics, hospitals, biotechnology, and healthcare services. These include well-known giants like Sun Pharma, Cipla, Dr Reddy's, Apollo Hospitals, Divi’s Labs, and diagnostic firms such as Metropolis and Dr Lal Path labs. Some funds also include MNC pharma companies or exporters with strong USFDA pipelines.
Top 5 stocks in most pharma funds:
- Sun Pharma
- Divi’s Laboratories
- Cipla
- Dr Reddy’s Labs
- Apollo Hospitals
Together, these make up nearly 65–75% of many fund portfolios — again, showing high concentration, much like in defence funds.
Past Performance & Cycles
Healthcare funds have delivered mixed returns over the past five years. The sector peaked in 2020–21 due to COVID-related demand and exports, but returns flattened in 2022–23 as global pharma cycles cooled.
However, 2024 brought new tailwinds:
- PLI schemes
to boost domestic manufacturing
- A sharp pickup in exports to the US and
Africa
- India’s growing vaccine diplomacy and
R&D capabilities
- Health insurance penetration increasing
post-COVID
- Telemedicine and digital health innovation
As a result, many pharma
indices delivered 15–18% returns in FY24–25, and actively managed pharma
funds beat broader indices like Nifty 500 during market downturns.
Government support through Production Linked Incentives (PLI), Ayushman Bharat
expansion, and “Atmanirbhar Bharat” in APIs and formulations.
2. Export Edge:
India is the world’s largest provider of generic medicines. With patent cliffs
approaching in the US and Europe, Indian companies are positioned for volume
gains.
3. Domestic Demand Surge:
Rising lifestyle diseases, increasing insurance penetration, and growing health
awareness have boosted demand across metros and Tier-II/III cities.
4. Defensive Nature:
Pharma is a classic defensive sector — it tends to outperform in volatile
markets due to consistent demand.
Should You Invest Now ?
The sector looks reasonably valued compared to its historic highs. P/E ratios of major pharma funds hover around 22–25x, which is moderate when seen in the context of earnings revival and margin expansion across the sector.
Risks to Consider
- Regulatory risks:
USFDA warnings or compliance failures can severely impact exports.
- Currency fluctuations:
A strong rupee can dent export revenues.
- High concentration:
Top 5 holdings dominate fund portfolios, making them sensitive to
company-specific news.
- Cyclicality:
While seen as defensive, the sector still goes through approval delays and
price pressure cycles.
So, What’s the Prescription?
Pharma and healthcare funds can offer a healthy diversification in your portfolio, especially if you want partial protection in choppy markets. That said, these should not replace your core equity holdings like flexi-cap or large-cap funds.
Ideal exposure:
Limit to 5–10% of your portfolio unless you're taking a tactical
sectoral bet.
Investment horizon: At least 5 years to ride out regulatory
cycles and profit from compounding.
Best entry strategy: SIP route to average out valuations, or staggered
lumpsum if markets dip.
Final Take
Pharma and healthcare funds offer the twin benefit of growth and stability — but come with sector-specific risks. With valuations cooling and fundamentals improving, they might just be the right shot in the arm for your long-term portfolio. But like any good prescription, dosage matters — so don’t overdose.
