The Hindu Business Line : Reliance Pharma beats sluggish phase for pharma funds

Even as the bull run in construction, capital goods, power and banking stocks has been at the forefront of the recent market rally, sectors such as IT and Pharma have been left high and dry; thanks to an appreciating rupee and mixed earnings numbers from these sectors.

If you are bullish on the markets, piggybacking a rally through a combination of sector funds may be a good idea. Pharma stocks as a class have been underperformers in recent times and many stocks from this sector are quoting at their 52-week lows. When sector funds focussing on power and infrastructure have turned 120 and 80 per cent over the past year, pharma funds have delivered single digit or negative returns, in many cases.

The sharp divergence in performance even within the sector, between the generic exporters and the contract players has probably resulted in these divergent returns. Investors can however hold these funds, as this underperforming sector could catch up

Business Line scanned the performance of the pharma funds to evaluate how they changed their portfolio over the one-year period. When the category average was 3 percent, Reliance Pharma was a clear outperformer with returns of 24 per cent.

Reliance Pharma Fund

This fund has retained its asset base over the past two years when its peers have witnessed outflows. The fund preferred mid and small cap stocks rather than large caps. Since the most of the large cap players in pharma see sizeable revenues originating from the US market, their earnings are vulnerable to rupee appreciation and the pricing pressures in the US pharma market.

Interestingly, Reliance Pharma Fund picked up Divi’s Laboratories, which has cornered close to one-fifth of the portfolio, while few peers fails to pick the stock. The stock has surged sharply in the last two years. As the stock price moved northwards, the fund preferred to book profits.

The small-cap stock Ankur Drugs and Pharma, which has moved substantially, was retained in the portfolio without much change. Another mid cap stock Dishman Pharmaceuticals that posted reasonable return underwent profit booking and the holdings were substantially pruned (by close to 40 per cent) in the past six months. The fund accumulated Torrent Pharma and Vimta Labs to a significant extent in the past six months.

UTI Pharma Fund

The fund preferred to adopt a buy-and-hold strategy, but has taken advantage of market conditions to rejig its portfolio. In the latest portfolio, large-cap stocks accounted for close to 42 per cent of the portfolio. Ranbaxy Laboratories was the exception to the fund’s relatively passive approach and the fund actively traded the stock.

The fund pruned its holdings in Cipla substantially in April, when the price moved up and accumulated the stock in the subsequent months, as the stock price declined. The fund has shed close to 35 per cent of the holdings in Dr Reddys Laboratories in the past six months.

Similar to Reliance, this fund too trimmed its holdings in Dishman Pharmaceuticals over the past few months. In Shasun Chemicals & Drugs the fund preferred to book profits significantly between June and now. Over the quarter, the fund has added significantly to its holding in Sun Pharmaceuticals and pruned its holdings in Aventis.

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