For those looking to take exposure to healthcare as space now, ETFs present a few interesting options. The biggest advantage of investing in an ETF is you get the units at real-time NAVs, unlike mutual funds that allot the units at the closing NAV.
The Healthcare sector as a whole has been under the spotlight since the outbreak of the pandemic. As per NITI Aayog’s communication, healthcare has emerged as one of India’s largest sector, both in terms of revenue and employment. As we fight through the second wave of the pandemic and await the citizens of the country to be fully vaccinated, healthcare will be a priority not only from an administration point of view but also for the public at large in the years ahead.
Healthcare as an industry is projected to reach $372 billion by 2022 riding on domestic growth drivers such as government-funded National Health Protection Scheme Ayushman Bharat, affordable medical care and infrastructure, telemedicine, robotic surgeries, higher insurance coverage and growing life expectancy. Moreover, India is a major supplier of generic medicines globally, especially to the developing economies. Being the ‘pharmacy of the world’, the domestic healthcare space stares at a huge potential. The Department of Pharmaceuticals has already announced an outlay of Rs 6,940 crore under the Production Linked Incentive (PLI) scheme to promote domestic manufacturing of bulk drugs across 53 APIs (active pharmaceutical ingredients) over the next six years.
Talking about the healthcare space from a stock market perspective, after a prolonged underperformance between 2016 and 2019, Covid-19 has turbocharged healthcare stocks. The Nifty Healthcare Index rallied a whopping 57.90 per cent in 2020 compared to a 16.10 per cent jump in the Nifty50 index. The second wave has thus far ensured that the trend continues. Nifty Healthcare Total Returns Index (TRI) comprises 20 fast-growing pharma companies. The top five names of the index as of March 2021 are Sun Pharmaceutical Industries, Dr Reddy’s Laboratories, Divi’s Laboratories, Cipla, and Apollo Hospitals Enterprise.
This brings us to the next question, for an investor who has missed out on participating in the healthcare/pharma story thus far, how can they participate in the days ahead? For an investor who is not much aware of the stock market, mutual funds are the best way to go about investing. Currently, a number of healthcare funds exist in the market – some active and others passive.
Inactive funds, a fund manager takes an active call to buy or sell the stocks, whereas passive funds track the constituents of an index. For example, the index when it comes to healthcare is the Nifty Healthcare Index Fund which comprises 20 companies. Lack of active management makes passive funds cheaper.
For those looking to take exposure to healthcare as space now, Exchange Traded Funds (ETFs) present a few interesting options. The beauty of ETFs is that it is listed on the exchanges and can be bought or sold at any time during the market trading hours. The biggest advantage of investing in an ETF is you get the units at real-time NAVs, unlike mutual funds that allot the units at the closing NAV. However, do remember that the returns generated by the ETF will reflect the performance of that index minus expenses.
Among the healthcare ETFs, ICICI Prudential AMC, one of the largest fund houses in India has recently launched a New Fund Offer (NFO) in this category — ICICI Prudential Healthcare ETF. The NFO which opened on May 6 will continue till May 14. The ICICI Prudential Healthcare ETF will track the Nifty Healthcare TRI.
If one were to consider the performance of the index, historical data shows that Nifty Healthcare TRI has outperformed the Nifty50 index in six out of the last 10 calendar years. While past performance is not a guarantee of future performance, there are solid reasons to put faith in the growth drivers of the healthcare space.
by Malav Sharedalal, Head – MF, Pravin Ratilal Share and Stock Brokers