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S. Vaidya Nathan

AN investment can be considered in the UTI Pharma and Healthcare Fund as this would provide an exposure to a sector that is likely to outperform the broad market over the next six-to-twelve months. Returns may be steady rather than spectacular.

The equity market has been characterised by volatile trends and the scope for an across-the-board upside appears limited. In such markets, pharmaceutical stocks tend to find support from a larger number of investors. Such a trend has been evident over the past three months as large-cap pharma stocks, with the exception of Dr Reddy's and several mid-cap stocks, have held their ground in a declining market.

Pharma companies are also well-placed to capitalise on emerging outsourcing opportunities in the developed markets. A patent law that would inspire greater confidence among global pharma majors is also on the anvil from January 2005.

This could provide an impetus to the outsourcing story from India and also lead to an expansion in the product basket of MNC affiliates in India.

A steady growth in revenues, earnings and prices of stocks from this sector appears likely. Even if the broad market declines, expect stable price trends in stocks from this sector. In this backdrop, investors who are wary of, or cannot afford. several pharma stocks can buy the fund.

Suitability: The UTI Pharma Fund is appropriate for investors who seek diversification of a portfolio laden with economically-sensitive stocks.

As a sector-specific fund, the risks are higher. But over the next six-to-12 months, the risk-return equation may be rewarding for investors. Investors can opt for the dividend option as there is a likelihood of exemption of dividends from tax.

Portfolio: The fund has a tilt towards stocks of frontline Indian and multinational pharma companies. Stocks such as Ranbaxy, Wockhardt, Dr Reddy's, Aventis 0and GlaxoSmithKline Pharma form core holdings. The fund also has exposures to mid-cap stocks such as Nicholas Piramal, Cadila Healthcare, Biocon, Aurobindo Pharma and Shasun Chemicals.

These stocks have the potential to deliver higher growth rates than the frontline companies.

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