Mutual funds bet big on healthcare stocks after Trump's tariff pause. Is the danger really over?

Economic Times

19-05-2025

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Donald Trump 's 90-day pause on reciprocal tariffs announced on April 9, 2025, brought much-needed stability to stock markets and lifted sentiment in the pharma and healthcare sectors, which had been clouded by uncertainty.The pharmaceutical sector found itself in a unique position, having received exemptions in the initial tariff announcements which kicked-in on April 2, though no clarity on what lay ahead. Between April 2 and April 9, the Nifty Healthcare index had declined by over 3%, or nearly 1,300 points.However, the Nifty Healthcare index staged a strong rebound following the pause, rising 7% or around 2,650 points over the remaining 12 trading sessions of the month. This recovery was accompanied by notable institutional activity, with mutual funds increasing their holdings in 11 healthcare stocks in April compared to March.Healthcare was also among the sectors where MF ownership was higher by over 1% versus the sector's weight in the BSE 200 index.According to a Motilal Oswal report, 17 funds were over-owned and MFs weight on the sector stood at 7.6% in April, behind private banks (18.9%), technology (8.3%) and automobiles (8%). Meanwhile, the healthcare sector in BSE 200 stands at 5.4%, the report revealed.Highest MoM buying of 11.43% in April was seen in midcap stock Syngene International . It was followed by Glenmark Pharmaceuticals Dr. Reddy's Laboratories and Laurus Labs where mutual funds added stake by 7.63%, 6.05% and 3.85%, respectively.Others like Lupin, Aurobindo Pharma, Divi's Laboratories, Sun Pharmaceutical Industries, Abbott India, Ipca Laboratories and Biocon also saw mutual fund action towards the buying side.Nine healthcare stocks also went under the hammer and saw a sell-off. These were Zydus Lifesciences Torrent Pharmaceuticals , Max Healthcare Institute, Mankind Pharma, Granules India, Fortis Healthcare, Cipla, Apollo Hospitals Enterprise and Alkem Laboratories.MF selling was highest in Torrent Pharma and Zydus Lifesciences at 8.34% and 4.87%, respectively. The next in the pecking order were Granules, Apollo and Mankind where MFs sold 3.89%, 3.64% and 3.61%. The others saw a sell-off between 1.67% and 0.46%.Sumit Bhatnagar, Fund Manager Equity at LIC Mutual Fund said that the healthcare sector often remains resilient due to the essential nature of its services and products and innovations and an aging population continue to drive demand. However, the potential impact of Trump's tariffs on the healthcare sector is a valid concern in his view and tariffs could increase costs for healthcare companies which could affect their profitability. "These increased costs might be passed on to consumers or could lead to reduced margins for healthcare companies," he told ETMarkets.DSP and Quant top the list with holdings of 11.5% and 11.1%, respectively and are followed by Axis MF (10.4%), Mirae (9.7%), HDFC MF (9.1%) and Sundaram MF (8.4%).The lowest holdings are for SBI MF (5.1%), MOFSL (5.5%) and UTI MF (6.1%).Nifty Healthcare index's 1-year returns stand at 17%, outperforming Nifty which has returned 12% in the same period.MFs continued to show trust on Syngene in April despite a 6% drop in share price over a 1-year period. Meanwhile, mutual funds sold shares in laggards Zydus Lifesciences and Alkem which have fallen 14% and 2% in the past 12 months.Divi's remains the best performer in the pack with 60% returns and MFs added stakes in April (1.13%) and March (2%). Glenmark and Laurus, which also saw significant MF action, have returned robust 44% and 36% returns.Lupin, Abbott, Sun Pharma and Biocon have also given double-digit returns in the same period while IPCA, Aurobindo and Dr. Reddy's have delivered single-digit returns.Mutual funds booked partial profits in stocks like Fortis Health, Max Health, Granules, Mankind and Torrent Pharma whose 1-year returns stand in the range of 21% and 56%. Apollo Hospitals has yielded 18% returns while Cipla has been an underperformer with just 6% returns.The sector is again in the eye of the storm as Trump has signed an executive order to bring the prices for prescription (Rx) drugs in line with other developed nations. The order institutes the Most-Favoured-Nation (MFN) price model for drugs as a ceiling which means the US will pay for drugs at the same levels as the lowest paid by other countries."The policy initiatives, if implemented fully, may lead to increased compliance/operational cost for foreign manufacturers, including those in India. We expect generic pharma to continue to underperform due to uncertainty," Nuvama Institutional Equities said in a note. It prefers Ajanta Pharma, Torrent Pharma and Divi's Lab.HDFC Securities sees the generic companies unlikely having any impact, though it expects Sun Pharma with its specialty business in the US, to see some impact of MFN price ceiling for a few of its products. JM Financial sees over 20% growth visibility for hospitals and CDMO for the next 4-5 years. Amongst the hospitals, it likes Max Healthcare, Aster DM and Fortis while Piramal Pharma and One Source in CDMO.However, UBS expects healthcare to outperform Nifty over the next 12-month period as the Zurich-based brokerage reiterated its positive stance on Nifty, seeing an 8% upside with a target of 26,000. In a note of caution on generic pharma export names, it expects earnings downgrades starting in 2HFY26.: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)