MF Tracker: HDFC Pharma & Healthcare Fund tops equity MFs at 25% in 1 year. Should investors chase the rally?

HDFC Pharma and Healthcare Fund has offered the highest CAGR of around 25.31% in the last one year based among all equity funds including sectoral and thematic funds, an analysis by ETMutualFunds showed. There were around 529 funds in the said period of which this pharma and healthcare sector fund offered the highest return.

Launched on October 4, 2023, this pharma and healthcare sector fund is not given any rating by Value Research and Morningstar both.

Based on the trailing returns, the fund has managed to outperform its category average across different horizons and the data for the benchmark was available for comparison. In the last three months, the fund delivered a return of 11.40% compared to 9.54% as the category average.


In the last six months, the fund delivered a return of 28.02% compared to 21.83% as the category average. In the last one year, the fund posted a return of 25.86% against 15.87% as the category average. Since its inception, the fund has posted a CAGR of 30.72%.

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As the fund was launched in October 2023, based on the yearly returns, the fund delivered a return of 50.33% in 2024 and 1.22% in 2025. Among all funds based on the pharma and healthcare sector, the fund delivered the highest return in 2024.

How does the fund manager decode the performance?

Nikhil Mathur, Fund Manager and Senior Equity Analyst : The performance of the fund can be attributed to bottom-up stock selection approach and investing into growth opportunities at reasonable valuations. The returns are attributed to both – hospital/diagnostic space and pharmaceutical space.

How did an expert decode the performance?

Amitabh Lara, Executive Director, Anand Rathi Wealth Limited analysed the performance of the fund and told ETMutualFunds that the recent outperformance was driven by several factors coming together and Indian pharma companies benefited from strong demand for generic drugs in the US, one of their largest export markets, along with a strong pipeline of FDA approvals that supported new product launches and revenue growth.

“Domestically, steady growth in formulations and rising health insurance penetration improved healthcare access, benefiting hospitals, diagnostics and pharmaceutical companies. As these structural drivers became more visible, investors began pricing in stronger future earnings growth, leading to a re-rating of healthcare businesses.”

Amitabh further said that investors should avoid making allocation decisions based on past performance as today’s leaders rarely stay at the top for an extended period of time. With the healthcare and pharma sector outperforming in the past one year, funds investing in this sector have seen strong returns which is pushing many investors to chase the performance and allocate further.

The other funds who have completed one year of existence in the industry delivered returns ranging between (19.58%) to 25.31% in the past one year. Post analysing the performance of the fund based on different angles, the investors are willing to invest in this sector. Is it wise to invest after such a sharp rise, or could this mean chasing past returns?

Amitabh said that if investors are choosing to invest in this sector solely based on past performance, then this can be classified as a case of recency bias, investors should avoid making the mistake of allocating towards any sector or market segment that has performed well recently and such decisions should be based on suitability to portfolio, long term strategy and grounded in fundamentals.

He further said that performance leadership is usually cyclical. Hence investors should be cautious about making focused bets on any sector/theme because different sectors have different phases of outperformance and underperformance.

Key risks involved

A key concern for investors is the potential impact of US trade policies on Indian pharmaceutical companies. On July 21, US President Donald Trump announced a phased tariff plan for imported generic medicines, giving drugmakers a two-year reprieve before sharply higher duties kick in.

In a post on Truth Social, the US President wrote that all generic drugs being brought into the US will have no tariffs for a two year period. Following which, the tariff will be raised to 100% from August 1, 2028 and then to 200% by August 1, 2029.

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The announcement offers temporary relief to Indian pharmaceutical companies, which generate a significant share of their revenues from the US generic drug market. The two-year tariff-free period gives Indian exporters more time to reassess their supply chains and investment plans.

Trump said the phased tariff structure is intended to encourage companies to set up manufacturing plants and related infrastructure in the US during the transition period. Companies that do not localise production would eventually face punitive import duties, in line with the administration's broader "America First" manufacturing agenda.

Commenting on other key risks involved while investing in this sector, Amitabh said the key risk is mean reversion, as sectors perform in cycles and the current outperformance of pharma and healthcare may not last and investors who enter at the wrong time may find themselves sitting on losses for an extended period before the sector recovers.

Regulatory risk is another concern, as Indian pharma companies are heavily dependent on US FDA approvals and export revenues. Any adverse FDA observations, drug pricing changes, or tariff headwinds from the US can directly impact earnings of the sector's largest players, and in turn, the fund's returns, the expert further said.

Being a pharma & healthcare fund, the fund holds 27.89% in large caps, 33.16% in mid caps, 4.56% in others, and 34.39% in small caps. In comparison to the pharma & healthcare category, the fund is overweight on mid cap and small cap.

The fund had the highest allocation in Divi’s Laboratories of around 9.54%, followed by 8.94% in Sun Pharmaceuticals.

Risk ratio parameters of fund

The PE and PBV ratio of the pharma and healthcare fund were recorded at 67.50 times and 9.68 times respectively whereas the dividend yield ratio was recorded at 0.41 times as of August 2026.

ETMutualFunds analysed the other key ratios of the fund in a three year period. Based on the last three years, the scheme has offered a Treynor ratio of 3.71 and an alpha of 1.88. The sortino ratio of the scheme was recorded at 1.17.

The return due to net selectivity was recorded at 1.62 and return due to improper diversification was recorded at 0.25 in the last three years.

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Can performance continue for next 3-5 years?

The expert said that if the factors pushing the healthcare and pharma sectors continue as is, then we can expect these funds to perform well in the future as well. However this may not happen as the geopolitical situation is ever-evolving, and there are many other factors and tailwinds to consider. Sectors also go through mean reversion, which means the healthcare and pharma sectors may see a change in course in the coming future.

He further said that investors should avoid investing in sectoral funds due to their cyclical nature. Instead, investing in diversified equity mutual funds will provide exposure across various sectors and stocks.

Mathur said the outlook is pretty robust on multiple counts. Domestic healthcare services have multi-year growth visibility owing to altering population dynamics, rising insurance penetration and improved affordability. Pharmaceutical companies are benefitting from opening of GLP-1 market - both India and export markets.

“Traditional generics space is benefitting from reduced dependence on the more volatile US generics space, while biosimilars and complex generics are unlocking a large addressable opportunity. CRDMO is also a fast-growing area, aided by global innovators increasing share of sourcing from India. Risks to this outlook include tariff related uncertainty, higher oil price led cost pressures and tighter regulations around pricing in India,” Mathur further said.

Others in pharma and healthcare sector basket

Apart from HDFC Pharma and Healthcare Fund, 16 other funds have completed one year of existence in the industry. Apart from these 16 funds, Kotak Healthcare Fund delivered the highest return of 25.26%, followed by PGIM India Healthcare Fund who gave 22.21% and ICICI Pru Healthcare Fund gave the lowest return of 5.05% in the last one year.

According to the SID of the fund, the fund is suitable for investors seeking to generate long-term capital appreciation and want investment predominantly in equity & equity related instruments of Pharma and healthcare companies.

The expert said that rather than investing in a sectoral fund, investors can opt for diversified equity mutual funds; they hold the edge of safety as they are not focused on a single sector or industry, which will help to reduce the underperformance risk of any single sector/ industry.

Additionally investing in diversified equity funds will lead to auto diversification in the portfolio allowing investors to participate in the rally seen in various sectors at various times while also being well diversified, the expert further said,

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)

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