sailesh-raj-bhanFunds managed by Sailesh Raj Bhan – Reliance Pharma Fund, Reliance Multi Cap Fund, Reliance Consumption Fund, and Reliance Large Cap Fund.

Is this a good time to invest in pharma sector mutual funds? What investment strategies (SIP, STP, Lumpsum) should they opt?

After 3 years of consolidation, the Pharma Sector has started to show material improvements on the fundamental side.

We believe Indian Pharma sector is primed for a meaningful recovery over the next 3 to 5 years and hence investors with a longer-term time frame in mind & appropriate risk appetite can consider investments in the fund.

Given the market conditions we believe based on the risk appetite, investors can consider a combination of Lumpsum with staggered allocations through SIP or STP modes.

Why do you think Pharma is going to recover in next 3-5 years? Should existing investors remain invested?

Indian Pharma Sector is one of the most globally competitive sectors out of India, having material market share in the US and selling products to over 100 countries in addition to meeting the requirements of a huge domestic market.

Post the consolidation of last few years the sector appears to be poised for a recovery due:

Start of New Earning Cycle: Earnings, which was the biggest challenge in recent past is starting to improve across segments due to low base, efficiency, currency gains etc.

Domestic Business Opportunity: Domestic business can witness Multi-Year growth due to huge under penetration, rising income, better diagnosis etc.

US Generics revival: Excessive pricing pressure is bottoming out, rise in FDA plant resolutions and product approvals are likely to lead a recovery in US business.

Focus on Healthcare: Focus on Healthcare through schemes like ‘National Health Protection Scheme which would cover 10 crore families, will benefit Healthcare services like Hospitals, Insurance Diagnostics etc.

Reasonable Valuations: Over the last 3 years S&P BSE Healthcare index is down by 8.5% while S&P BSE Sensex gained over 33% (Absolute Returns as of June 15, 2018) reflecting the underperformance. For Ex: Domestic branded companies trade at a significant discount to FMCG companies despite similar characteristics, while International Business command low valuation on poor base of earnings over last few years.

Reliance Pharma Fund is well positioned to capture this opportunity and is well diversified across all the key segments like: Branded, Generics, Domestic, International, Healthcare Services, Insurance etc. We believe, the Fund with its focus on “Growth at Reasonable Valuation” along with appropriate risk management practices like focus on sustainable business models can deliver superior risk adjusted returns over the coming few years.

Is Pharma still a safe sector to invest?

Pharma continues to be a secular theme, reasonably insulated from business cycles and global/domestic events.

The domestic space represents multi-year growth opportunities given the low penetration while the US business appear to be reviving. Over the last 2 -3 years businesses had witnessed disruptions due to GST, pricing policy interventions/ reduction (both domestic & US), compliance issues – plant audits by USFDA, high base of earnings etc.

The opportunity in the sector is attractive, as growth returns and investors look beyond US Generic challenges. Earnings may improve given the low base of past 3 years, resolution of FDA approvals and robust growth in domestic markets.

What is an appropriate time horizon to invest in this sector?

Given the fact that Reliance Pharma fund is a thematic fund investors with appropriate risk appetite can consider investments in the fund from a 3 to 5 year, perspective.

How will the 2019 elections impact Pharma sector?

Pharmaceuticals is a proxy consumption play and in that sense relatively insulated from business cycles and global/ domestic events.

The sector has also witnessed price reductions & policy interventions in the last few years and mostly reflected in the current valuations. Hence policy changes, if any are likely to have limited impact.

How can US policies affect Pharma sector?

Indian Pharma Sector enjoys a material market share in the US Generic space and is one of the most competitive manufacturers.

Indian businesses have withstood the disruptions of the last few years like lower margins on channel consolidation, plant compliance issues etc and are witnessing early signs of a revival.

Hence, we expect the any International Policy change may not have a major impact on the sector, given its already low base.

What is your strategy for Reliance Pharma Fund for next 1-3 and 3-5 years?

Reliance Pharma fund has a well established long-term track and has grown over 14 times since its inception on June 5, 2004 i.e. NAV of Rs 10 has become Rs 144 (as of June 26, 2018).

Reliance Pharma Fund is well positioned to capture the anticipated opportunity in the pharma space and is well diversified across all the key segments like Branded, Generics, Domestic, International, Healthcare Services, Insurance etc.

The fund is well diversified across market capitalization and adopts prudent risk mitigation lower stock level concentration, with an attempt to generate superior risk adjusted returns over the long term.

Disclaimer: the views expressed here are of the fund manager being interviewed and do not reflect those of Groww.