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Pharma funds attract investors

Aabhas Pandya

It has been a bitter investment but investors want more. Despite a discouraging performance by three pharma funds since their launch in 1999, fresh investments have continued to pour in, largely driven by the long-term potential for the sector. Assets under management for three funds have seen an average growth of 30.52 per cent in the current year despite sharp erosion in net asset values.

For instance, the pharma funds from Kothari Pioneer, UTI and SBI Mutual Fund have seen an average fall of 32.26 per cent in the year-to-date period (ended October 20, 2000). Worse, none of the funds have paid any dividend since launch in 1999 with net asset values of both KP Pharma and SBI Magnum Pharma currently ruling below par. Only UTI Pharma has given a positive (though paltry) return of 2.08 per cent since launch in June 1999.

For a sample of growth in unit capital, consider this. The unit capital of Kothari Pioneer Pharma has vaulted by over 90 per cent from Rs 280 million in April 1999 to Rs 545 million on September 29, 2000. The assets under management, despite a below par NAV, are at Rs 517 million against Rs 257.7 million in April 1999. Fresh investments have also come thick and fast in UTI Pharma, with the unit capital racing from Rs 188 million in September 1999 to Rs 664 million.

While the inflows into pharma funds would surely pale in comparison to the mad rush for the flamboyant technology funds earlier this year, the fresh investments nonetheless highlight the conviction for the pharmaceutical sector. While the sector had underperformed the markets last year with nearly flat sales growth, the second quarter has seen pharma companies bounce back with largely impressive results.

The pharma sector has seen a near 20 per cent jump in sales with the bottomline growing by over 30 per cent in the second quarter. Apart from the steady growth, the highly fragmented sector (with over 20,000 companies) offers a tremendous opportunity for consolidation with mergers and acquisitions. This would surely add to returns from the sector in the long run.

However, fresh investors in pharma funds should not expect dramatic returns and need to be patient with their investments with the pharma sector beating the broad market indices in the long-term. For instance, the i-SEC Pharma index has seen an annualised gain of 69.41 per cent since launch in 1996 against a 7.17 per cent return by Nifty Total Return Index. Currently, the pharma funds are available at close to par values and offer a good buying opportunity. After all, medicines are a human being's most pressing need.

Pharma Brigade Rolls On

Fund	Capital (latest in Rs crore)	Capital *	Returns (in % since launch)
KP Pharma	54.54	28.60	-2.30
SBI Magnum Pharma	24.99	2.07	-1.59
UTI Pharma & Healthcare	66.40	18.80	2.08

* First available figures

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