ICICI Prudential Nifty Pharma Index Fund: Aims to Capture Growth of Pharma Stocks?

Dec 01, 2022 / Reading Time: Approx 13 mins

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Over the years, India has emerged as a pharmacy to the world by being the largest provider of generic drugs globally and exporting pharmaceuticals to over 200 countries. Also, 70% of the World Health Organisation's vaccines (as per the essential immunisation schedule) are sourced from India.

Pharma is the 3rd largest industry worldwide in terms of production by volume and 14th by value. The current contribution to the country's GDP by the pharma sector is 1.72%. As per the Union Budget 2022-23, US$ 4.83 billion has been allocated to the 'National Health Mission'. The skilled drug manufacturing for generic patented drugs as well as end-to-end manufacturing at low cost. Quality services at marginal costs compared to the US, Europe and South Asia. And the launch of one of the largest National Health Protection Schemes globally are some growth drivers unlocking the potential of the pharma sector.

Pharma companies can be attractive for long-term investors in spite of the volatility. With the ever-rising industry size and healthcare becoming a critical part of life, investors can make good returns if they suitably invest in this sector.

What are Sectoral Index Funds?

A sectoral fund is an equity fund that invests in stocks belonging to a particular industry or sector. Sector-oriented index funds are passively managed funds tracking the returns of a certain index having exposure to specific sectors of the economy.

 

ICICI Prudential Mutual Fund has launched ICICI Prudential Nifty Pharma Index Fund, it is an open-ended Index scheme replicating Nifty Pharma Index.

Commenting on the launch of NFO, Mr Chintan Haria, Head- Product Development & Strategy at ICICI Prudential AMC, said, "Pharma sector in India continues to flourish on the back of health schemes introduced by the government, increase in exports and growing domestic demand. Going forward, greater awareness, changing attitude towards preventive healthcare, increased precedence of lifestyle diseases and better access to insurance is likely to further boost the pharma industry. By investing in ICICI Prudential Nifty Pharma Index Fund, an investor gets to tap into the opportunities presented by the pharma sector."

Table 1: Details for ICICI Prudential Nifty Pharma Index Fund

Type An open-ended Index scheme replicating Nifty Pharma Index Category Index Fund
Investment Objective The investment objective of the scheme is to invest in companies whose securities are included in the Nifty Pharma Index and subject to tracking errors to endeavour to achieve the returns of the above index. This would be done by investing in all the stocks comprising the Nifty Pharma Index in the same weightage that they represent in the Nifty Pharma Index. However, there is no assurance or guarantee that the investment objective of the scheme shall be achieved.
Min. Investment Rs 1,000/- and in multiples of Re 1 thereafter. Additional Rs 1,000/- and in multiples of Re 1 thereafter Face Value Rs 10/- per unit
Plans
  • Direct
  • Regular
Options
  • Growth Option
  • Income Distribution cum capital withdrawal option (IDCW)
Entry Load Not Applicable Exit Load Nil
Fund Manager - Mr Kayzad Eghlim
- Mr Nishit Patel
Benchmark Index Nifty Pharma TRI
Issue Opens: November 25, 2022 Issue Closes: December 09, 2022
(Source: Scheme Information Document)
 

What will be the investment strategy for ICICI Prudential Nifty Pharma Index Fund?

ICICI Prudential Nifty Pharma Index Fund will be invested in stocks constituting the respective benchmark of the scheme, i.e., the Nifty Pharma Index in the same proportion (weights) as the index and track the benchmark index, subject to tracking errors.

The scheme's performance may not be commensurate with the performance of the respective benchmark of the schemes on any given day or over any given period. Such variations are commonly referred to as tracking errors. The scheme intends to maintain a low tracking error by actively managing the portfolio in line with the index.

ICICI Prudential Nifty Pharma Index Fund: Aims to Capture Growth of Pharma Stocks?
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The portfolio shall be rebalanced within 7 days to ensure adherence to the asset allocation norms of the scheme. Similarly, in the event of a constituent stock being demerged/merged/delisted from the exchange, the scheme will reallocate the portfolio and seek to minimise the variation from the index. Further, the scheme intends to participate in securities lending as permitted under regulations.

How will the scheme allocate its assets?

The scheme aims to invest in the constituent of the Nifty Pharma Index in the range of 95% to 100%. A very small portion (0-5% of the Net Assets) of the scheme may be kept liquid to meet the liquidity and expense requirements.

Table 2: Asset Allocation for ICICI Prudential Nifty Pharma Index Fund

Instruments Indicative Allocation (% of net assets) Risk Profile
Minimum Maximum High/Medium/Low
Equity and Equity related securities of companies constituting the underlying index (Nifty Pharma Index) 95 100 Very High
Money Market instruments, including TREPs and Units of debt schemes 0 5 Low to Medium
(Source: Scheme Information Document)
 

About the benchmark

NIFTY Pharma Index captures the performance of the pharmaceutical sector. The index comprises of 20 companies listed on the National Stock Exchange of India (NSE).

NIFTY Pharma Index is computed using the free float market capitalisation method, wherein the level of the index reflects the total free float market value of all the stocks in the index relative to a particular base market capitalisation value.

Here's the list of the top 10 constituents by weightage and sector representation under the index as of October 30, 2022:

(Source: ICICI Pru Nifty Pharma Index Fund PPT)
 

# Note that the index will rebalance semi-annually in January and July.

Who will manage the ICICI Prudential Nifty Pharma Index Fund?

Mr Kayzad Eghlim and Mr Nishit Patel will be the designated fund managers for this scheme.

Mr Kayzad Eghlim has more than 30 years of experience in financial services and holds an MBA, M. Com, and B. Com degrees. Before joining ICICI Pru AMC, he was associated with IDFC Investment Advisors Ltd. as a Dealer - Equities; Prime Securities as a Manager; Canbank Mutual Fund (IS Himalayan Fund) as a Fund Manager; and Canbank Mutual Fund as Equity Dealer assisting the Fund Manager. He worked with the Primary Market Department (IPO) at the beginning of his career.

At ICICI Pru AMC, Mr Kayzad currently manages ICICI Prudential Equity - Arbitrage Fund, ICICI Prudential Nifty 100 ETF, ICICI Prudential Nifty Next 50 Index Fund, ICICI Prudential Nifty ETF, ICICI Prudential NV20 ETF, ICICI Prudential Sensex ETF, ICICI Prudential Nifty Index Fund, ICICI Prudential Equity Savings Fund, ICICI Prudential Nifty Low Vol 30 ETF, BHARAT 22 ETF, ICICI Prudential S&P BSE 500 ETF, ICICI Prudential Nifty Next 50 ETF, ICICI Prudential Bharat 22 FOF, ICICI Prudential Bank ETF, ICICI Prudential Midcap Select ETF, ICICI Prudential Midcap 150 ETF, ICICI Prudential Alpha Low Vol 30 ETF, ICICI Prudential IT ETF, ICICI Prudential Nifty Low Vol 30 ETF, ICICI Prudential Healthcare ETF, ICICI Prudential FMCG ETF, ICICI Prudential Consumption ETF, ICICI Prudential Smallcap 250 Index Fund, ICICI Prudential Private Banks ETF, ICICI Prudential Silver ETF Fund of Fund, ICICI Prudential Nifty Auto ETF, ICICI Prudential Nifty Infrastructure ETF, ICICI Prudential Nifty 200 Momentum 30 Index Fund, and ICICI Prudential Nifty IT Index Fund.

Mr Nishit Patel joined ICICI Prudential Asset Management Company Limited in November 2018 and was working under ETF Business. He is a Chartered Accountant and B. Com graduate. At ICICI Pru AMC, Mr Patel currently manages ICICI Prudential Midcap Select ETF, ICICI Prudential Nifty 100 ETF, ICICI Prudential Nifty Next 50 Index Fund, ICICI Prudential Nifty ETF, ICICI Prudential NV20 ETF, ICICI Prudential Sensex Index Fund, ICICI Prudential Nifty Index Fund, ICICI Prudential Regular Gold Savings Fund (FOF), ICICI Prudential Gold ETF, ICICI Prudential Sensex ETF, ICICI Prudential S&P BSE 500 ETF, ICICI Prudential BHARAT 22 FOF, ICICI Prudential Nifty Next 50 ETF, ICICI Prudential Bank ETF, ICICI Prudential Private Banks ETF, ICICI Prudential Midcap 150 ETF, ICICI Prudential Alpha Low Vol 30 ETF, BHARAT 22 ETF, ICICI Prudential IT ETF, ICICI Prudential Nifty Low Vol 30 ETF, ICICI Prudential FMCG ETF, ICICI Prudential Healthcare ETF, ICICI Prudential Consumption ETF, ICICI Prudential Smallcap Index Fund, ICICI Prudential Silver ETF Fund of Fund, ICICI Prudential Passive Multi-Asset Fund of Funds, ICICI Prudential Nifty Auto ETF, ICICI Prudential Nifty 200 Momentum 30 ETF, ICICI Prudential Nifty Infrastructure ETF, and ICICI Prudential Nifty 200 Momentum 30 Index Fund.

 

Should you invest in ICICI Prudential Nifty Pharma Index Fund?

ICICI Prudential Nifty Pharma Index Fund aims to provide returns that closely correspond to the total returns as represented by the Nifty Pharma Index, subject to tracking errors.

The underlying index is designed to reflect the behaviour and performance of the companies that are into the manufacturing of pharmaceuticals and biotechnology. The index includes companies which are into generic drugs, OTC medicines, bulk drugs, vaccines, contract research & manufacturing, biosimilars and biologics. The medical devices market in India has the potential to grow by 4x the current market size by FY 2030, backed by growing healthcare needs and the government's commitment to facilitate growth. The scheme offers investors an opportunity to gain optimal returns from the growth potential of the pharma sector.

However, this scheme is a sector-oriented Index fund that will aim to invest only in the healthcare sector, which creates a concentration risk. Additionally, the persistent repercussions of the geopolitical tension, spiralling inflation and the fears of a possible recession in the US in 2023 may cause a significant risk to economic growth and continue the prevailing high market volatility. The margin of safety appears to be narrow, and the clear direction for the equity market from the current elevated levels is uncertain. These factors, among many others, could have a bearing on the index and its top constituents, which may impact the scheme's performance and may affect negatively if the sector moves out of favour.

This makes ICICI Prudential Nifty Pharma Index Fund a highly risky investment proposition. It is suitable only for investors with a high-risk appetite, a long investment horizon of at least 5-7 years, and for those with a better understanding of the entry and exit in the pharma sector.

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Warm Regards,
Mitali Dhoke
Research Analyst

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