With a strong belief in the growth prospects of the Indian drug firms, Magnum Pharma could be well suited for a targeted diversification in pharmaceutical stocks.
27-Aug-2001 •Research Desk
Magnum Pharma Fund was launched in July 1999. The fund started with a very small asset base of Rs 2 crore. Soon after its launch, it went ballistic in October with a 35 percent gain in a month, beating the BSE Healthcare Index, which returned 29 percent. This sharp gain aided by fresh inflows in the fund took the fund assets to almost Rs 20 crore by March 2000.
In its two-year tenure now, the fund is down 14 percent in absolute terms, under-performing its benchmark by a wide margin of 40 per cent. This fund likes to invest in growing companies at attractive prices. There's nothing uncommon about that approach, but here it creates a distinctive portfolio. This fund has a slug of the big-cap Indian and foreign drug companies that grace most other health-care funds, but it shows preference for some special situations as well.
The fund has been a strong believer in Indian drug firms and its portfolio has largely been overweight on the domestic stocks. The key position of the fund has been -- Cipla, Dr Reddy's and Ranbaxy. According to the fund manager "The top tier Indian Pharma companies should emerge clear winners and their focus on generic exports may report significant growth in turnover and profits over the next four to five years". In 2001, an average 60 per cent of the fund has been concentrated in top five picks. This has worked well for the fund in recent times, with MNC pharmaceutical stocks getting a severe beating. However, the fund expects a turnaround in sentiment for MNC Pharmaceutical stocks. The fund manager Sandip Sabharwal's is of the view that "MNC stocks may be at the point of inflexion now, as the valuations have become very compelling". This is also reflected in the gradual buildup of position in MNC stocks.
Sure, this fund has a slug of the big-cap Indian and foreign drug companies that grace most other health-care funds, but it shows preference for some special situations as well. For instance, the fund is especially upbeat on Aventis Pharma, for its strong performance and solid growth, a stock which few other funds own. Other small, mid-cap and unlisted positions of this kind include Jupiter Orga, Ind-Swift laboratories and Shanta Biotechnics.
From any perspective, this fund looks distinctive as it moves more deliberately than its other two peers. The fund's giant-cap drug holdings generally afford some stability to the fund, which is marginally supplemented with risky but not speculative small, mid-cap and unlisted positions. The fund could be well suited for a targeted diversification of pharmaceutical stocks.