The healthcare sector has performed stunningly well. And this growth is more remarkable because the sector has been a laggard for many years. In the last five years, the industry faced multiple headwinds especially in the area of export revenues because of regulatory changes in the United States. Even in domestic revenues, the industry saw a slowdown.
However, in the last year, the sector has witnessed a turnaround in its export sales growth to 8 percent and 12 percent domestic sales growth. The overall spending on the healthcare sector is also increasing now as citizens are getting prepared for a medical response and healthcare infrastructure perspective for future pandemics. This is in turn increasing the future outlook for the sector. Pharma companies are also looking at diversifying away from China, and India will be a major beneficiary here.
Where can SBI Healthcare Opportunities invest?
The fund is looking at investing in pharma stocks, that have a presence in India, or regulated markets such as the US, Europe, Russia, Brazil, and South Africa. The fund also has the endeavor to invest in contract manufacturing companies, which will tie up with innovator companies and big pharma companies. 35 percent of the fund can be invested in international securities.
Lump-sum and SIP returns
Let us look at the growth of INR 1 lakh lump sum investment in the fund over the past half-decade. Despite having underperformed for a long time because of industry-specific issues, there have been profitable returns in just the past 3-4 months.
Let us also look at the growth of INR 10,000 monthly SIP in the scheme at the same time. With a cumulative investment of INR 6 lakhs over the last 5 years, you could have accumulated more than INR 8 lakhs by now. The fund gave around 11.73 percent XIRR returns.
Why should you invest in SBI Healthcare Opportunities Fund?
In the current economic environment, healthcare is the brightest performing sector. Pharma and healthcare outperformed the large-cap and the broader market in the previous year.
The sector has also been successful in resolving the US FDA related regulatory issues. Even before COVID, the Indian pharma was progressing, since valuations became reasonable and growth also looked better in the domestic geography. The government also gave incentives on the API, and companies can take benefits from the API parks that have been announced.
Thus, investments in this fund are definitely in the right direction. This will have positive impacts on earning, and not just in the short term.
Shortly, companies will also increase their spending on healthcare as a part of their GDP. The dependence of the world on China and their desire to de-risk away from China but at the expense of wanting security at the same time is a great opportunity that Indian is capitalizing on. Companies are investing heavily in areas of strength to grow faster, and this will be beneficial for the healthcare sector, not just for domestic business, but also exports.
India also happens to be one of the largest pharma exporters in the world. It will, therefore, be a likely beneficiary when the pharma supply chain from China diversifies. This shift of business from China to India will be gradual but is a sustainable opportunity for Indian companies.
Moreover, pharma is a defensive sector, and they are less impacted by economic cycles like growth, recession, and slowdown. Allocating to the defensive sector in your portfolio will also add stability to it.
SBI Mutual fund is one of the largest asset management companies in the country and has a strong fund management team.
Summing it up
The SBI Healthcare Opportunities Fund us a good option for those who have a minimum of 3-5 years of the investment horizon. You could invest in this scheme either in lumpsum or through SIPs, as per your financial situation. However, if you are looking at a SIP, you need to have a longer investment tenure of more than 5 years.
Healthcare and pharms are both great turnarounds for the country. They have been a great wealth creator in the past, and the future looks bright too. However, bear in mind that these are sectoral funds, and therefore, do not allocate more than 5-10 percent of your portfolio into this fund.