Small and midcap stocks will be in action soon

DSP Healthcare Fund manager Aditya Khemka says clarity over policies will drive growth

By Author  |  Published: 13th May 2019  12:16 amUpdated: 12th May 2019  11:52 pm
midcap stocks
CAUTION: Khemka says small investors should understand that there cannot be discretion spend in pharma and healthcare.

Hyderabad: Small and midcap stocks, which have seen erosion in their value in the recent times, will be back in action once the elections results are out. This is the time to make measured investments, according to an official of a fund house.

“Historically, we have seen that many investors do a risk-off during elections and invest only in large cap stocks, which they think are safer options. That is because of the uncertainty about policies that might change with a government coming in. But once the haze goes, small and midcap stocks will be back in action,” said Aditya Khemka, Fund Manager, DSP Healthcare Fund.

“Large caps have become expensive. It is best to buy small and midcap stocks at lower prices. After the elections are over, the index will go up. This might take about 12 months or so after elections results are out. That is because there will be no uncertainty in terms of policy,” he said.

Pharma sector is a regulated segment. “We think the required regulatory framework is in place and we hope there will not be any major changes. If any, there will be some alignments. Stocks have fallen far more than what the regulation can impact. This is an opportunity to invest. Once the businesses normalise, the cash-flows will improve,” he said.

Small investors should understand that there cannot be discretion spend in pharma and healthcare. Changing lifestyle will be a key factor. “In India, people do not take preventive medication. We do reactive medication. That will change but will take some time,” he said.

One of the risk factors for the pharma sector is USFDA inspections. “This is a regulatory aspect. But the impact on the stock will be limited till the issue on hand gets solved. Pharma is mainly export driven and a stronger rupee will impact performance as margin will erode. Off-patent regime will be a plus for India as it is strong in making generic drugs. India has a competitive advantage even as it is exploring new markets,” Khemka said.

On increasing exposure in Sun Pharma, he said: “When the whistle blower report came out, we went through the material details and were confident that there is no truth in allegations. Even if they were true, the impact on Sun Pharma would be very small. That fall in share price enticed us to up our stake. We got it around Rs 400-450 compared to Rs 650. So we were very clear that if we buy at that price there is very little to lose. This issue will eventually get settled with the regulator. The stock should get back to its original price over time.”

“Hospital chains came is under pressure due to Government intervention in the form of capping prices on knee caps and stents. With the cap on prices, margins got eroded. However, there is no further scope to reduce prices. Now, hospitals have started increasing prices of services. They are going back to earlier returns,” he said adding that it now has two hospitals in its portfolio and will be on the look out to up its exposure. It is also keen on diagnostic centres, medical devices and health insurance for investment. The universal health insurance scheme will spawn new opportunities for pharma sector as access to healthcare will improve.

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