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Pharma funds leave a bitter taste

Aabhas Pandya

Pharma funds have left a bitter taste for their investors in the first half of the current calendar year with an average loss of 32 per cent as on June 30, 2000. Even as the losses and volatility in information technology funds have hogged the limelight, it is pharma funds that have suffered the maximum erosion in net asset values.

While the three FMCG (fast moving consumer goods) funds have lost 26.55 per cent for the six months ended June 30, IT funds have lost only 18 per cent during the same period. In fact, IT funds were able to recoup a part of their losses in June itself, when the Sensex went up over 7 per cent.

The pharma fund from SBI Mutual Fund, Magnum Pharma has gone below par and is the top loser with its NAV dropping by 35.05 per cent from Rs 15.23 on January 3 to Rs 9.89 on June 30. Kothari Pioneer's pharma fund is a close second, losing 34.55 per cent from Rs 15.28 to Rs 10 during the same period. The best performer among the pharma funds is the UTI Pharma and Healthcare Fund, down 26.38 per cent. The fund has been relatively better off than its peers and it is partly attributed to the surprise presence of telecom major Himachal Futuristic in the portfolio. The scrip has a 5 per cent weightage in the portfolio as on March 31, 2000 and has registered more than 100 per cent gains from its low of around Rs 700 in mid-May to around Rs 1,400 levels currently.

The pharma sector has been under a sustained bear spell since the beginning of the year. Apart from the slowdown in sales, the sector's valuations also took a hit early this year as investors logged aggressively into technology stocks. The shift in preference to technology stocks sharply pulled down the prices of pharma stocks. The Budget in February added to the gloom as the government levied a tax on export income. Also, the government has been unable to take a decision on liberalising the pricing mechanism of drugs. The only silver lining for the battered stocks this year has been in the form of tax incentives for research and development activities.

Among the top weighted pharma stocks, Glaxo has lost over 45 per cent in the last six months with its price declining from Rs 789 on January 3 to Rs 432 on July 6. In the same period, Ranbaxy has lost 37 per cent from Rs 997 to Rs 621. E Merck has been the worst hit with a over 53 per cent fall to Rs 300 levels.

While the pharma sector continues to suffer from government apathy coupled with lower sales, the sector holds long term potential for investors. Currently, all the three pharma funds are available at close to their par values and offer a good buying opportunity. After all, medicines are a human being's most pressing need!

Fund	NAV on Jan 3, 2000 (Rs)	NAV on Jun 30, 2000 (Rs)	Returns (%)
Kothari Pioneer Pharma	15.28	10.00	-34.56
Magnum Pharma	15.23	9.89	-35.06
UTI Pharma & Healthcare	14.25	10.49	-26.39

Source: Value Research

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