Pharma, health care funds: Ignore correction, stay invested for long haul

Sector provides investment opportunity for the long term, according to experts

Pharmaceutical funds are the best-performing equity fund category over the past year, with an average return of 19.1 per cent. After two calendar years (CY) of strong returns in 2023 (37.1 per cent) and 2024 (41.4 per cent), however, they have corrected 7.3 per cent year-to-date in 2025.

 

“The pharma sector performed reasonably well last year, a volatile year for equities. Its defensive nature, steady earnings growth, and relatively attractive valuations compared to sectors like capital goods and consumer were the key drivers of its outperformance,” says Sailesh Raj Bhan, chief investment officer – equity investments, Nippon India Mutual Fund.

 

As many as 27 pharma and health care schemes together manage assets worth Rs 31,053 crore. Some also invest in overseas listed stocks.

US factor

Indian companies had expected the United States (US) Biosecure Act to drive incremental business. But with the onset of a tariff war in CY25, the Act was not enacted. The tariffs proposed by the US have created near-term uncertainty. “Indian companies play a crucial role in supplying high-quality generics to the US,” says Shibani Kurian, senior executive vice-president and head – equity research, Kotak Mutual Fund.

 

Since the tariff structure for the pharma sector has not been announced yet, uncertainty continues. “As investors tend to avoid uncertainty, market volatility may continue,” says Dheeresh Pathak, senior fund manager – equity, WhiteOak Capital Asset Management Company (AMC).

 

Analysts are also waiting to see the impact on Indian firms of President Trump’s recent executive order requiring companies to reduce drug prices in the US market.

 

Near-term volatility due to macro or geopolitical issues may also continue to affect these funds. “Tariff negotiations will remain in a state of flux in the near term. Currency fluctuations, which have been significant, can cause temporary impact,” says Sorbh Gupta, head – equity, Bajaj Finserv AMC.

Domestic push

The government’s production-linked incentive (PLI) scheme is expected to encourage capacity expansion in India. Low health care penetration should benefit service providers like hospitals. “While India is among the fastest-growing economies, health care spending as a percentage of GDP (gross domestic product) remains lower than in emerging markets. As a country’s GDP per capita grows, health care expenditure as a per centage of GDP also increases. Hence, there is a long runway for growth,” says Pathak.

Outlook positive

Pharma funds are expected to offer decent risk-adjusted returns over the medium term. “There are structural tailwinds for contract research and manufacturing services, health care, wellness, and branded generics, which will last for several years,” says Gupta.

 

The health care sector presents a compelling investment theme for the long term, according to some experts. “Over the past decade, India’s health care landscape has transformed from primarily generic drug manufacturing to encompass innovators, contract service providers (clinical research, contract development and manufacturing), hospitals, and diagnostics. Robust growth has been fueled by increasing affordability, improved access, and advancements in medical technology,” says Kurian.

 

Pharma sector valuations have corrected close to 10 per cent since early January 2025. “It is a long-term opportunity, given the attractive sector economics, long growth runway, rising per capita income, favourable demographics for sector growth, and high return on equity,” says Bhan.

 

Structural tailwinds provide growth visibility for the long term, which is expected to support valuations. Gupta suggests remaining invested and riding these trends. Invest in these funds for seven years or more. Limit exposure to any single sector fund to 5 per cent of the equity portfolio.

   

Sound long-term performance
Period	Category average return-trailing (%)
1-year	19.1
3-year	23.9
5-year	23.4
10-year	13.6
Above one-year returns are compound annualised. All returns are of direct plans.
Source: Navigation RA