In The Pink Of Health

The struggling pharma funds have staged a smart recovery after a lackluster performance for the past few years. The BSE Healthcare Index, that crashed along with the rest of the market in January 2008, has recovered quickly and gained 17.7 per cent in the past three months.

In 2005-06, the Equity: Pharma category was the worst performing category in the equity class of mutual funds. The average return of the category in the three-year period (2005-07) stood at 20 per cent, a far cry from the 47.3 per cent return by equity diversified funds. This small category with five funds has also witnessed a steep fall in assets under management since then. The combined AUM that stood at Rs 623 crore in January 2005 is down 60 per cent to Rs 254 crore, Reliance Pharma alone accounting for Rs 122 crore. Surprisingly, none of the five funds in this category have a large-cap heavy portfolio.

However, in the three month period ended May 2, 2008, the pharma category of mutual funds bounced back. In the period, the average return of pharma funds stood at 10.28 per cent, at a time when almost all equity categories posted negative returns. Reliance Pharma, the category topper for the past two years could not manage to retain its position. Magnum Pharma took very concentrated bets with 48 per cent of the portfolio in just two stocks. As a result, it could not capitalise on the surge in the sector and was the only one to post negative returns.

Fund    Return (%)* UTI Pharma & Healthcare   16.35 JM Healthcare Sector   15.18 Franklin Pharma   13.92 Reliance Pharma   6.35 Magnum Pharma   -0.4 Category Average    10.28 *February 2- May 2, 2008

The robust numbers declared by various pharma companies helped the sector rally. For instance, Ranbaxy Laboratories, the second largest aggregated holding of these funds, reported a 60 per cent growth in its PAT over 2007-08. Smaller players like Glenmark Pharma reported a 188 per cent rise in profits on a y-o-y basis.

Stocks    Return (%)* Glenmark Pharmaceuticals   39.82 Ranbaxy Laboratories   33.87 Sun Pharmaceutical Industries   28.98 Glaxosmithkline Pharmaceuticals   25.60 Biocon   23.66 *February 2- May 2, 2008