AgenciesIT and pharma funds, favourite sectors of investors during Covid, are staring at losses and topping the list of laggards. IT sector funds have lost 11.84% year to date , while pharma funds are down 10.09%. Many investors got into these schemes after their exceptional performance in 2020 and 2021. What should these investors do now?
Sure, Russian aggression has complicated matters for investors. However, mutual fund managers believe that the long term outlook of both these sectors remains positive. However, there can be short-term volatility because of a lot of reasons, including the volatile US market and the geo-political scenario.
“In IT, the growth remains very strong. The momentum will sustain in this fashion for at least two to three years. On margins, there is an expectation of escalation of costs in IT. So, that is the uncertain part right now. The economy is opening up and travel is 2-3% cost to the IT companies that was almost NIL for the last 2-3 years. On the valuation part, we are seeing a correction globally. Nasdaq’s correction is also having a rub off effect on Indian IT,” says Meeta Shetty, Fund manager, Tata Mutual Fund.
IT sector funds have offered eye-popping 39.67% returns in one year, but have fallen to -5.40% returns in 3-months and -5.61% returns in 1-month. Some schemes in the IT category have fallen 10% in three months. On the other hand, pharma funds offered 11.96% returns in one year, -5.70% in 3 months and -4.07% in 1-month.
“India is said to be the largest provider of generic drugs globally and going forward the PLI Schemes introduced by the Government in the Indian Pharma industry would focus on making the industry self-reliant. These are long-term positives of the sector. Hence, investors who have a long-term vision and can stomach volatility can allocate a small portion to the pharma sector funds. IT on the other hand is a more stable and growth-oriented sector but is equally volatile,” says Shifali Satsangee, a mutual fund distributor, based in Agra.
Fund managers also believe that the pharma sector has stabilized after the initial spike due to the covid-19 pandemic. “On the pharma side, the spike that we saw in the sector at the start of the pandemic has died down. The last 12 months have been extremely tepid. The reason is the USA which accounts for one third of the market for most of the large companies. The volatility in the USA has led to a serious price erosion. Domestic revenues have been good but largely it remains a steady story. Raw material prices have also gone up so that has cropped up some challenges. The USA has to turn around for the pharma sector to look better and get re-rated,” says Meeta Shetty.
Both the categories had seen an increased participation from retail investors in the last two years. Mutual fund advisors say that investors should have a longer term horizon when it comes to sector funds. These advisors ask investors to reevaluate if they can take the volatility in these schemes.
“I would suggest investors to get into these schemes only if they have the risk appetite. If you are an existing investor and have a long term investment horizon, stay invested. These funds can be a part of your satellite portfolio from a long term perspective for asset allocation. Investors should understand the risks involved since these funds are sectoral/thematic in nature,” says Shifali Satsangee.
Sure, Russian aggression has complicated matters for investors. However, mutual fund managers believe that the long term outlook of both these sectors remains positive. However, there can be short-term volatility because of a lot of reasons, including the volatile US market and the geo-political scenario.
“In IT, the growth remains very strong. The momentum will sustain in this fashion for at least two to three years. On margins, there is an expectation of escalation of costs in IT. So, that is the uncertain part right now. The economy is opening up and travel is 2-3% cost to the IT companies that was almost NIL for the last 2-3 years. On the valuation part, we are seeing a correction globally. Nasdaq’s correction is also having a rub off effect on Indian IT,” says Meeta Shetty, Fund manager, Tata Mutual Fund.
IT sector funds have offered eye-popping 39.67% returns in one year, but have fallen to -5.40% returns in 3-months and -5.61% returns in 1-month. Some schemes in the IT category have fallen 10% in three months. On the other hand, pharma funds offered 11.96% returns in one year, -5.70% in 3 months and -4.07% in 1-month.
“India is said to be the largest provider of generic drugs globally and going forward the PLI Schemes introduced by the Government in the Indian Pharma industry would focus on making the industry self-reliant. These are long-term positives of the sector. Hence, investors who have a long-term vision and can stomach volatility can allocate a small portion to the pharma sector funds. IT on the other hand is a more stable and growth-oriented sector but is equally volatile,” says Shifali Satsangee, a mutual fund distributor, based in Agra.
Fund managers also believe that the pharma sector has stabilized after the initial spike due to the covid-19 pandemic. “On the pharma side, the spike that we saw in the sector at the start of the pandemic has died down. The last 12 months have been extremely tepid. The reason is the USA which accounts for one third of the market for most of the large companies. The volatility in the USA has led to a serious price erosion. Domestic revenues have been good but largely it remains a steady story. Raw material prices have also gone up so that has cropped up some challenges. The USA has to turn around for the pharma sector to look better and get re-rated,” says Meeta Shetty.
Both the categories had seen an increased participation from retail investors in the last two years. Mutual fund advisors say that investors should have a longer term horizon when it comes to sector funds. These advisors ask investors to reevaluate if they can take the volatility in these schemes.
“I would suggest investors to get into these schemes only if they have the risk appetite. If you are an existing investor and have a long term investment horizon, stay invested. These funds can be a part of your satellite portfolio from a long term perspective for asset allocation. Investors should understand the risks involved since these funds are sectoral/thematic in nature,” says Shifali Satsangee.
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