One sector stands out with big returns: 10 funds gained up to 30% in 1 year

Additionally, the data reveals that only ten pharma mutual funds out of 19 active sectoral-pharma funds have beaten the benchmark and category in terms of delivering returns of more than 20% in just one year. 

According to Value Research, sectoral pharma funds are the second-best-performing category after international mutual funds, with a trailing return of 19.01% in a year. 

They outperform other sectoral funds like auto & transportation by 3.25 percentage points, banking & financial services by 7.06 percentage points, and technology by 25.29 percentage points. 

This indicates that, out of the four sectors, pharma has performed the best, with technology being the only one to carry a negative return.

Performance is mainly driven by a combination of factors such as clarity around US tariffs, strong domestic demand, healthy export growth, and a favourable exchange rate.

Top performing pharma mutual funds in 1 year

Over the past 1-year, the healthcare and pharma funds have produced impressive performance, with returns ranging from 20.93% to 29.8%, surpassing both the category average of 20.7% and the BSE Healthcare TRI benchmark, which returned 18.68%. 

With a 29.8% one-year return, Kotak Healthcare Direct was the best performer. This was 9.1 percentage points over the category average and 11.12 percentage points higher than the benchmark BSE Healthcare TRI. 

Source: Value Research as of 28th August 2026

Factors that have triggered the spike

One of the major factors is an improved outlook for Indian generic-drug manufacturers in the US market and the exclusion of generic pharmaceuticals and their associated ingredients from the 100% US tariff on certain pharmaceutical imports has reduced concerns around a major export market for Indian drug companies. 

In the Union Budget 2026-27, the government announced that India is investing Rs. 10,000 crore over five years to enhance its pharmaceutical sector under the Biopharma SHAKTI project. 

With the support of the Biopharma Shakti Initiative, the PRIP Scheme, PLI Schemes, and Bulk Drug Parks to bolster R&D, innovation, domestic manufacturing, and robust pharmaceutical supply chains, the government announced on April 13, 2026, that India is transforming from a global leader in generics into a biopharma innovation hub.

As per the PIB report dated March 21, 2026, India’s pharmaceutical sector is currently ranked third in the world by volume and eleventh in terms of value, further solidifying its position worldwide. 

The pharmaceutical, healthcare, and biotech industries reported 68 deals of USD 3 billion in Q3 2025, according to a Grant Thornton Bharat research. This is a 21% increase in volumes and a 277% increase in values from the prior quarter. 

Moreover, if we look at India’s pharmaceutical exports in Q1 FY27, it has increased by 6.8% YoY to $8.1 billion, whereas in FY26 it increased by over 2% YoY to $31.11 billion, as per the Pharmaceuticals Export Promotion Council of India (Pharmexcil).  

“However, it is also important to note that valuations in the sector have become elevated following the recent performance and the index is currently trading at 43x PE, against its historical average of 37 to 38x PE, which indicates the sector is currently at slightly elevated valuations,” said Adil Chacko, Executive Director at Anand Rathi Wealth. 

Pharma sector outlook ahead

In the near term, the pharma sector is likely to remain constructive, driven by structural growth in India’s healthcare spending, rising domestic demand, and export opportunities. 

“However, it is also important to note that after the recent rally, valuations in the sector were elevated, and further performance in the sector is more likely to be based on actual earnings growth rather than growth expectations,” stated Chacko. 

“However, it is also important to consider that in recent days the US has announced a phased tariff structure on pharma imports under which generic-drug imports would continue to face 0% tariffs until August 2028, followed by a 100% tariff for one year and 200% thereafter, which remains a key risk for Indian pharma companies in the medium term,” he further added. 

Risks to evaluate before investing in pharma funds

For investors, it is suggested to avoid investing in sectorial/thematic funds even though the sector outlook appears favorable, said Chacko.  

Investing in sectoral funds like pharma categories is associated with multiple challenges, like increased concentration risk associated with the performance of any single sector and often undergoes cyclical performance backed by regulatory and policy risks, patent expiry risk, current and export risk, which increases overall portfolio volatility.

“Instead, one can consider investing in active diversified equity categories like market cap-based funds like large, mid and small caps & strategy-based funds like value, focused and dividend yield,” recommended Chacko. 

This gives exposure across the segments, sectors, and market caps, including the pharma sector & reduces concentration risk, and helps to ride across market phases.

Disclaimer: This article is for informational purposes only and should not be construed as investment, financial, tax, or legal advice. Any illustrations, examples, or return projections used in this article are for explanatory purposes only and do not guarantee actual investment outcomes. The views and opinions expressed by experts quoted in this article are their own and should not be considered investment recommendations. Readers should consult a qualified professional before making any financial decisions. 

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