Pharma funds - Tonic for ailing investors? - Views on News from Equitymaster

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Pharma funds - Tonic for ailing investors?

Apr 20, 2000

Nothing seems to be coming in the markets way on its south-bound journey. Even the NASDAQ, which recovered over the past two days did not mirror a rise in the local markets. With all stocks falling like nine-pins, investors could take a closer look at pharma stocks. There is no denying the fact that the sharp decline in the markets since the last week has been pervasive taking all sectors in its wake. But there is also no denying that software stocks have been hit the hardest. Nervousness on the NASDAQ has played its own role in pulling down software stocks. Earlier equitymaster.com had advised investors to wait patiently (as far as software funds are concerned) till the dust settles down (which could take a while).

Looking around, one realises that pharma stocks have not been hammered as badly as software. Whatever selling one has seen in pharma stocks has been largely due to redemption pressure on fund managers and due to the negative sentiment prevailing in the markets that has pulled down just about everything. The table below shows the performance of pharma funds over the past 5 days.

Pharma Funds NAV (Rs) as on
18-Apr-00 12-Apr-00 % Change
Kothari Pioneer Pharma Fund (Div) 10.3 10.9 -5.2
Kothari Pioneer Pharma Fund (Gr.) 10.3 10.9 -5.2
Magnum Pharma Fund 10.3 11.2 -8.0
UTI Pharma & Healthcare Fund 11.2 12.3 -9.4

While pharma funds have also fallen (like other sectoral funds) there is much merit in buying into pharma funds at current levels. Unlike software stocks, valuations of pharma stocks are more realistic. Pharma stocks are also immune from the strong undercurrents in the US markets, which gives Indian software stocks a cold every time the NASDAQ sneezes. In other words, pharma stocks are bound to reflect the performance of pharma companies more clearly as opposed to software stocks, which seem to be on their trip at present. And of course for the value investor, pharma funds are really cheap now.

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