In the latest weekly coverage on mutual fund NFOs, we cover the HDFC Pharma and Healthcare Fund. If you look at the universe of Pharma and Healthcare funds in India, the overall AUM is just about Rs16,600 crore or around $2 billion. That makes it much smaller than other sectors like banking and IT in terms of AUM. However, HDFC was one of the few large AMCs that did not have an exposure to healthcare funds in its portfolio, so this NFO fills up that gap in the HDFC MF offerings.
Also, pharma sector, as we shall see later in this note, is in a sweet spot. It has not been the most preferred sectors recently due to reasons like slowdown in the API market, price competition in the US markets and FDA objections to the practices followed by Indian pharma companies. However, there is now a shift to a new emerging model in pharma built around formulations, India franchise and CDMO and less about traditional US generics. That is what makes the HDFC Pharma and Healthcare Fund NFO interesting.
How the pharma and healthcare sector in India is structured?
The NFO of HDFC Pharma and Healthcare Fund will be open for subscription from September 14, 2023 to September 28, 2023. Let us start with an understanding of the pharma and healthcare sector in India and the emerging opportunity. The Indian pharma sector is looking at 3 major opportunities at this juncture.
Here the opportunity for India is not just in pharma but also healthcare. Hence the universe of coverage will include Pharma products like domestic formulations, US generics, US biosimilars and CDMO. On the healthcare front, the focus would largely be on diagnostics, hospitals and on retail pharmacy.
Why Indian pharma opportunity is beckoning?
There are some interesting statistical triggers why the Indian pharma opportunity is waiting to take off in a big way.
It is the higher insurance penetration that will drive the move towards quality healthcare services.
What will drive growth of Pharm and Healthcare in India?
There are several powerful triggers for the Pharma and Healthcare industry in India. This includes core pharma, diagnostics, and healthcare.
Growth in Indian pharma will be across domestic formulations, CDMO, global biosimilars, hospital chains, diagnostics, and retail pharmacies.
Is Healthcare attractive from a stock market perspective?
How does pharma and healthcare fare in terms of the stock market opportunity and potential returns?
The big advantage that a Pharma and Healthcare Fund brings, apart from growth, is the natural hedge in its business model.
Where will the HDFC Pharma and Healthcare Fund invest?
What is the universe of stocks that the HDFC Pharma and Healthcare Fund will invest in? Broadly, there is a universe of 99 companies that the fund will target. Out of this, pure pharma accounts for 71 companies, hospitals for 14 companies, diagnostics 8 and others are spread out. Out of the total universe of pharma and healthcare, 50% of the companies in market cap terms are large caps, 29% are mid-caps and 21% are small caps. So, there is a good mix of Alpha and Beta.
Here is how the portfolio will be structured The core portfolio will be 80% pharma and healthcare stocks, which will be invested in the universe of 99 companies as identified above. The fund will follow a multi-cap strategy, which is typically 50% into large caps and 25% each into mid-caps and small caps. In terms of investment philosophy, the fund will focus on identifying and capitalizing on trend shifts that will drive profits and the possibility of re-rating of the stock. The other theme would be to investment in companies which are either secular growth stories or where there is visible gain in the market share due to scale or greater shift to organized segment.
Key highlights of the HDFC Pharma and Healthcare Fund NFO
The HDFC Pharma and Healthcare Fund NFO is an equity fund with a spread of the portfolio across large caps, mid-caps, and small caps. Here are the NFO highlights.
The fund manager for the HDFC Pharma and Healthcare Fund will be Nikhil Mahur, who has an extensive background on the buy and sell side.
Understanding the Pharma & Healthcare Funds universe in India
Here are some major Pharma and healthcare funds in India.
Scheme Name |
NAV Direct |
Return 1 Year (%) Direct |
Return 3 Year (%) Direct |
Return 5 Year (%) Direct |
Return Since Launch Direct |
Daily AUM (₹ in crore) |
SBI Healthcare Opportunities | 313.99 | 31.51 | 20.46 | 16.81 | 16.71 | 2,044.76 |
DSP Healthcare Fund | 28.08 | 28.13 | 18.26 | 24.16 | 1,676.65 | |
ICICI Prudential Pharma Fund | 25.55 | 27.50 | 18.17 | 18.39 | 20.03 | 3,235.27 |
Nippon India Pharma Fund | 381.28 | 25.84 | 19.07 | 16.99 | 17.21 | 5,601.20 |
Tata India Pharma Fund | 22.84 | 24.69 | 18.97 | 17.14 | 11.32 | 672.41 |
UTI Healthcare Fund | 202.91 | 23.89 | 16.10 | 14.78 | 14.50 | 787.35 |
ABSL Healthcare Fund | 22.33 | 23.17 | 15.06 | 21.26 | 523.63 | |
ITI Healthcare Fund | 11.53 | 22.72 | 8.07 | 139.18 | ||
Mirae Asset Healthcare Fund | 28.07 | 20.85 | 19.05 | 19.98 | 22.00 | 1,847.00 |
LIC MF Healthcare Fund | 20.40 | 13.21 | 10.67 | 17.05 | 52.59 |
Data Source: AMFI
There are about 10 pharma and healthcare funds available in India today with total AUM of Rs16,600 crore. As can be seen in the above table, 1-year returns are attractive, as is longer term CAGR returns. Investors must keep in mind this thematic risks while applying for the HDFC Pharma and Healthcare Fund NFO.
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