Pharma now third-largest investment avenue for MFs

Pharma stocks have become one of the top attractions for fund managers, amid an uncertain economic scenario. The domestic mutual fund industry increased its exposure in the pharma sector by 127 basis points in the June quarter, the steepest rise in holding in any sector.

With this, pharma is the third-most sought after sector by fund houses, along with banks and software, pushing fast moving consumer goods (FMCG) a notch down, to fourth position.

Of the total equity assets of Rs 2,10,177.70 crore, investment in pharma constituted 7.51 per cent as on June 30, compared with 6.24 per cent at the end of the March quarter. Dhruva Raj Chatterji, senior research analyst at Morningstar India, says, “Defensive sectors have done well year-to-date. As there was risk-aversion among investors, FMCG and Pharma emerged as attractive venues for the fund managers for investment.”

With preference of defensive stocks on the rise, the sector indices outperformed the benchmark indices by a wide margin. For instance, during the June quarter, at a time when the Bombay Stock Exchange’s benchmark index the Sensex, underperformed and lost 3 per cent of its value, the BSE health care index gained 6.21 per cent, while the FMCG index was up 12.5 per cent. According to an analyst who tracks the pharma industry, “Margin pressure will continue on the drug makers but in terms of revenue and earnings growth, pharma companies are better placed compared with other sectors.”

Kaushik Dani, equity head at Peerless Mutual Fund, says, “During the quarter, the markets became risk-averse and players zeroed-in on defensive sectors such as pharma and FMCG. With unfolding of Greece crisis in the later part of the period, the underlying market tone remains uncertain. Till interest rates peak out, non-rate-sensitive sectors will continue to remain in focus.”

Some of the fund houses even tripled their investment in the pharma stocks during the period under review. “Stocks of companies such as Sun Pharma, Ranbaxy and Orchid Chemicals were among the top picks in the pharma space. On the FMCG front fund managers added more stocks such as Titan Industries, Nestle and Britannia,” elaborates chief investment officer of a mid-sized fund house, who requested anonymity.