This is an ideal time to invest in the P.H.D. Theme

P.H.D (Healthcare) theme’s inflection point growth kick-off makes it an ideal time to invest for the long haul.

If you want to choose a sector that has all the levers of growth in place and with the icing of a very high degree of valuation comfort, have a look at the P.H.D universe of stocks. P.H.D stands for pharma, healthcare, and diagnostics – and by our reckoning, this segment is a stable, maturing space that offers tremendous growth potential. 

Pankaj Mathpal 
Financial Planner and CEO, Optima Money Managers Pvt. Ltd 

In fact, the P.H.D universe is highly diversified and includes companies in fitness, healthcare foods, gyms, health insurance, wellness, hospitals, and so on. Diagnostics are businesses that are quite steady and a play on the rising affluence of Indians. This also includes health insurance. People are demanding better healthcare facilities. Hospitals too figure prominently in the list of growing opportunities for investors to benefit from. 

Healthcare: On an upswing
But here’s why we think the healthcare theme is in a long-term, secular growth phase. India spends about a fraction of its GDP, i.e. 4.9 percent on healthcare as compared to the advanced and Pankaj Mathpal Financial Planner and CEO, Optima Money Managers Pvt. Ltd. developed countries like UK and US that spend xx and xx percent. 

In the coming years, as India’s per capita income increases, consumption spends will only increase and healthcare spending will rise multi-fold. When incomes increase by x times, consumption spending usually rises twice as much, and healthcare including fitness, diagnostics, hospital care, etc. are expected to be major beneficiaries. 

Besides, India is a populous country that is home to 16 crore elderly citizens. With the increase in life expectancy, the demand for healthcare is set to increase. The increased awareness of healthcare, historical under-investment, government’s increasing spending and private investments make healthcare an excellent theme for the next many years. Hence, earnings growth in the P.H.D universe is expected to be above average. 

Pharma: On a rebound 
For a long time now, pharma had been a consistent performer. In the past three years, a series of US FDA observations and cancellation of licences on a string of Indian manufacturers impacted pharma companies’ stock prices. Now the situation is turning around. The pharma companies have taken remedial measures to address these concerns. 

The US FDA has begun to revoke observations or these are reducing. However, while pharma company stocks have factored in the negatives, the upside is still to be priced in. Plus, the exports contribute much lower revenues. Domestic revenues are seeing rising top line contributions. In other words, valuations are still quite attractive as pharma begins a new chapter of growth. 

Hospitals: On an expansion spree 
India’s people-to-hospital bed density ratio is a measly 1.1 bed for every thousand people. That’s considerably lower than the global average of 2.9 beds/1000 people, providing a good opportunity for growth in the hospital sector. By about 2025, three million beds will need to be added to achieve a target of 3 beds per 1000 people. 

Hospitals also have an added advantage in costs. India is well-known across the world for medical tourism. The costs in many common procedures such as a heart bypass, etc, are usually done at 1/10 of the cost as compared to the cost in the international markets. Further, the quality of healthcare is also highly comparable to foreign markets. 

Diagnostics: Adding to the value-addition
Diagnostics has been a fragmented industry for some time now, though things are changing. The companies in the organized space that comprise just 15 percent of the industry are expanding their footprint and adding more sample collection centres. Even though the diagnostic companies are in an investment mode, the resulting economies of scale will help reduce costs and provide better benefits. Plus, the technology is also improving the quality of diagnosis. 

Over the coming years, diagnostics is expected to be a Rs 380 billion industry by FY26. The organised players are expected to corner about 23 percent of the diagnostics market by FY26 from the present 15 percent. So, not only will the market expand but the range of diagnostic services will also expand, resulting in a win-win situation for the larger organized players. 

Prevention:
Rapidly gaining acceptance Health awareness is on an upswing with the people. Prevention is also fast catching up as a major theme. Some of the preventive measures that are gaining acceptance with people are vaccination, fitness, nutritional care, annual health check-ups, and so on. 

On these fronts, India has emerged as the largest manufacturer of vaccines. Fitness through the help of gyms, health clubs and slimming centres is at a nascent stage of growth, but that will only rise. Consumers are also increasingly looking at nutritional health products. 

Health insurance:
Improving penetration Health insurance has a very low penetration in India. About 58 percent of Indian spending on healthcare is self-funded. In the US and the UK, self-funded health care spends stand at 11 and 9 percent, respectively. In short, there is tremendous scope for health insurance penetration. 

Health insurance companies are also offering specialized products such as cardiac care, cancer care, etc. Further, with the emergence of nuclear families and increasing life expectancy, more people are expected to opt for health insurance products. 

Advantage P.H.D Fund/Theme
All in all, as an investor, you have to see the opportunities that P.H.D theme presents. There is good collateral evidence that much of the pharma industry’s woes are behind. Besides, healthcare’s earnings outlook is optimistic, with steady and secular growth over the long haul. This is unlike in the past when pharma companies were like cyclical investments. 

Through the P.H.D theme, you can invest in a wide range of companies, and a better way to practice this diversification is to invest in mutual funds as compared to investing in individual stocks, which is a greater risk. Healthcare companies with a good financial standing and that are showing excellent.

With most healthcare companies having a good financial standing, this theme can show good performance in the long run. Even more, as the healthcare theme is at an inflection point of growth, this is an ideal time for investing in the P.H.D. theme. The writer is serving as Director and Chief Financial Planner at Optima Money Managers Pvt. Ltd.