Fund managers take value calls on pharma

Sun Pharma, Dr Reddy's, Aurobindo among top picks

The beaten-down pharmaceutical sector is finding favour among mutual fund (MF) managers, with Sun Pharmaceutical, Dr Reddy's Laboratories and Aurobindo Pharma emerging as top bets.

Fund managers say pharma stocks are “value buys” and could do well over the next 12 to 24 months. In August and September, they'd invested ~2,200 crore in the three stocks. Sun Pharmaceutical alone cornered a little over ~900 crore and Dr Reddy took away a little over ~800 crore. The three pharma companies scrips have been in fund managers’ top 20 most bought stocks in these two months.

“It’s difficult to take a sector call in today’s market. Pharma, despite the mid-year crash, does not offer high comfort. But, then, we need to sift companies and go stock-specific. I admit there are issues for the sector but having said that, it is not advisable to completely shun these stocks. Sun Pharmaceutical is a strong contender for a strong and fast recovery maybe three to five quarters more,” says the chief investment officer (CIO) of a large fund house.

ICICI Prudential MF, UTI MF, SBI MF, Reliance Nippon MF and HDFC MF are among the top fund houses having the largest allocation to Sun Pharma of their total equity assets. Put together, there are 325 schemes which have invested close to ~8,000 crore in the stock.

“All pharmaceutical companies can’t be seen in one way. Problems and solutions are different for every entity. At the current stage, growth versus valuation looks comfortable in some of these stocks,” says Ashish Ranawade, CIO of Union MF.

HDFC MF has invested 6.2 per cent of its equity assets in Aurobindo. HDFC Prudence, HDFC Equity and HDFC Mid-Cap Opportunities have pumped the highest amount in the stock. A few years earlier, too, Aurobindo had played quite a strong role in fund manager Prashant Jain's portfolios.

Dr Reddy’s is being chased by Franklin Templeton MF, Reliance Nippon and Aditya Birla Sun Life MF. There are 153 schemes with exposure to Dr Reddy’s, with a total sum invested as on end-September at ~3,009 crore.

Put together, these three pharmaceutical companies have MF exposure of a little over ~17,000 crore.

Interestingly, the recent investment calls on pharma counters have gone right. Shares of Sun Pharma and Aurobindo are up nearly nine per cent so far in October. Dr Reddy’s moved up three per cent.