Maximising Returns for Retail Investor by capitalizing on Healthcare Sector in

Indian Stock Market

Prepared by

Ashwani Chandra

2010

Aims and Objectives:

1. The aim of this report is to focus on retail investors who are investing in the Indian stock

market to maximise their returns by capitalizing on healthcare indexes and healthcare stocks

in the present scenario.

2. The report includes a brief study of healthcare sector in India and the listed equities related

to healthcare.

3. The report compares a scenario were the stocks listed on three sectors has been taken

namely BSE IT, BSE FMCG and BSEHC and the comparison shows how healthcare sector has

an advantage.

Fact Sheet:

Sector structure/Market size

The healthcare industry in the country, which comprises hospital and allied sectors, is projected to

grow 23 per cent per annum to touch US$ 77 billion by 2012 from the current estimated size of US$

35 billion, according to a Yes Bank and ASSOCHAM report.

The sector has registered a growth of 9.3 per cent between 2000-2009, comparable to the sectoral

growth rate of other emerging economies such as China, Brazil and Mexico. According to the report,

the growth in the sector would be driven by healthcare facilities, both private and public sector,

medical diagnostic and pathlabs and the medical insurance sector.

Healthcare facilities, inclusive of public and private hospitals, the core sector, around which the

healthcare sector is centered, would continue to contribute over 70 per cent of the total sector and

touch a figure of US$ 54.7 billion by 2012.

Investments in Healthcare

The sector has been attracting huge investments from domestic players as well as financial investors

and private equity (PE) firms. Funds such as ICICI Ventures, IFC, Ashmore and Apax Partners invested

about US$ 450 million in the first six months of 2008-09 compared with US$ 125 million in the same

period a year ago, according to an analysis carried out by Feedback Ventures. Feedback Ventures

expects PE funds to invest at least US$ 1 billion in the healthcare sector in the next five years.

According to a Venture Intelligence study, 12 per cent of the US$ 77 million venture capital

investments in the July-September 2009 quarter were in the healthcare sector.

As part of its ‘Healthymagination’ initiative, GE will spend US$ 3 billion over the next six years on

research and development, provide US$ 2 billion of financing over the next six years to drive

healthcare information technology and health in rural and underserved areas, and invest US$ 1

billion in partnerships, content and services.

The government, along with participation from the private sector, is planning to invest US$ 1 billion

to US$ 2 billion in an effort to make India one of the top five global pharmaceutical innovation hubs

by 2020.

The Ajay Piramal Group-owned private equity (PE) firm, India Venture Advisors, will launch its

second US$ 150 million healthcare fund next year.1

Areas of Opportunity

The fast growth in the Indian healthcare sector has created various pockets of opportunities for

investors. A recent FICCI-Ernst and Young report highlights several such areas within the healthcare

sector.

• Medical infrastructure forms the largest portion of the healthcare pie. Beds in excess of one

million need to be added to reach a ratio of 1.85 per thousand at an investment of US$ 77.9

billion.

• The medical equipment industry is around US$ 2.17 billion and is growing at 15 per cent per

year. It is estimated to reach US$ 4.97 billion by 2012.

• The medical textiles industry is projected to double to reach US$ 753 million by 2012.

• Clinical trials have the potential to become a US$ 1 billion industry by 2010 and the health

services outsourcing sector has the potential to grow to US$ 7.4 billion by 2012, from US$

3.7 billion in 2006.

Notwithstanding the current economic slowdown, the US$ 2.26 billion Indian wellness services

market is expected to grow at about 30-35 per cent for the next five years on the back of rising

consumerism, globalisation and changing lifestyles, according to a FICCI-Ernst and Young study.

INVESTMENT FACT SHEET

The reason for choosing the particular three indexes mentioned in this study is as shown in the table

below. Since all the three indexes has a same base period and Base index value it sets a common

platform for industry wise comparison

Table 1.1 Indexes used for Analysis 2

Index Base

Period

Base Index

Value

Date of

Launch Method of Calculation

BSE FMCG

01

February,

1999

1000

1000

09 August,

1999

Launched on full market capitalization

Launched on full market capitalization

method and effective August 23,

2004, calculation method shifted to

free-float market capitalization

BSE Healthcare

01

February,

1999

1000 09 August,

1999

Launched on full market capitalization

method and effective August 23,

2004, calculation method shifted to

free-float market capitalization

BSE IT

01

February,

1999

1000 09 August,

1999

Launched on full market capitalization

method and effective August 23,

2004, calculation method shifted to

free-float market capitalization

Type

Investor Description

Investment Ideas

Fund Available with

Investor

Investor in IT sector

This type of investor is

investing in IT index in

equities with different

listed stocks in BSE IT

index.

This investor has invested in the IT sector equities and picked major stocks like Infosys, TCS, Wipro and Tech-Mahindra, etc.

Around 15 Lakhs

Investor in

FMCG sector

This type of investor is

investing in FMCG index

in equities with different

listed stocks in BSE

FMCG index.

This investor has invested in the FMCG sector equities and picked major stocks like Britannia, Colgate, ITC and Nestle etc.

Around 15 Lakhs

Investor in

Healthcare

sector

This type of investor is

investing in Healthcare

index in equities with

different listed stocks in

BSE HC index

This investor has invested in the

FMCG sector equities and picked

major stocks Lupin, Biocon,

Ranbaxy and Pfizer etc.

Around 15 Lakhs

Comparative Analysis of Three Sectors:

1) IT

2) FMCG

3) Healthcare

For the purpose of comparison amongst three sectors mentioned above there are few stocks

listed on the indexes of those sectors has been picked up and accordingly an analysis has been

done to obtain the result.

Analysis

IT Sector Stocks - Analysis

FMCG Sector Stocks - Analysis

Healthcare Sector Stocks – Analysis

Key Observation

1) Gain in the healthcare sector is 10.9% over the period of four months as compared to FMCG

(3.1%) and IT (

2) P/E ratio analysis shows that healthcare indexes amongst the selected stocks has 50% of

stocks as the potential stocks which can have good growth in future as compared to FMCG

which has 30% and IT which has 36.4% of potential stocks.

3) Healthcare indexes has

of overpriced stock and IT around 45.5% which shows a threat of stocks price crashing in

future.

Suggestion to Investors:

The investor who wants to invest in all three sectors can add

in the chart below for healthier returns.

Observations and Results

Gain in the healthcare sector is 10.9% over the period of four months as compared to FMCG

(3.1%) and IT (

/E ratio analysis shows that healthcare indexes amongst the selected stocks has 50% of

stocks as the potential stocks which can have good growth in future as compared to FMCG

which has 30% and IT which has 36.4% of potential stocks.

Healthcare indexes has

of overpriced stock and IT around 45.5% which shows a threat of stocks price crashing in

future.

Suggestion to Investors:

The investor who wants to invest in all three sectors can add

in the chart below for healthier returns.

and Results:

Gain in the healthcare sector is 10.9% over the period of four months as compared to FMCG

(3.1%) and IT (-4.2%) hence showing a better investment option in the healthcare sector.

/E ratio analysis shows that healthcare indexes amongst the selected stocks has 50% of

stocks as the potential stocks which can have good growth in future as compared to FMCG

which has 30% and IT which has 36.4% of potential stocks.

Healthcare indexes has the over priced stocks at 30% as compared to FMCG which has 40%

of overpriced stock and IT around 45.5% which shows a threat of stocks price crashing in

Suggestion to Investors:

The investor who wants to invest in all three sectors can add

in the chart below for healthier returns.

Gain in the healthcare sector is 10.9% over the period of four months as compared to FMCG

4.2%) hence showing a better investment option in the healthcare sector.

/E ratio analysis shows that healthcare indexes amongst the selected stocks has 50% of

stocks as the potential stocks which can have good growth in future as compared to FMCG

which has 30% and IT which has 36.4% of potential stocks.

the over priced stocks at 30% as compared to FMCG which has 40%

of overpriced stock and IT around 45.5% which shows a threat of stocks price crashing in

The investor who wants to invest in all three sectors can add

in the chart below for healthier returns.

Gain in the healthcare sector is 10.9% over the period of four months as compared to FMCG

4.2%) hence showing a better investment option in the healthcare sector.

/E ratio analysis shows that healthcare indexes amongst the selected stocks has 50% of

stocks as the potential stocks which can have good growth in future as compared to FMCG

which has 30% and IT which has 36.4% of potential stocks.

the over priced stocks at 30% as compared to FMCG which has 40%

of overpriced stock and IT around 45.5% which shows a threat of stocks price crashing in

The investor who wants to invest in all three sectors can add

Gain in the healthcare sector is 10.9% over the period of four months as compared to FMCG

4.2%) hence showing a better investment option in the healthcare sector.

/E ratio analysis shows that healthcare indexes amongst the selected stocks has 50% of

stocks as the potential stocks which can have good growth in future as compared to FMCG

which has 30% and IT which has 36.4% of potential stocks.

the over priced stocks at 30% as compared to FMCG which has 40%

of overpriced stock and IT around 45.5% which shows a threat of stocks price crashing in

The investor who wants to invest in all three sectors can add stocks in the percentage as shown

Gain in the healthcare sector is 10.9% over the period of four months as compared to FMCG

4.2%) hence showing a better investment option in the healthcare sector.

/E ratio analysis shows that healthcare indexes amongst the selected stocks has 50% of

stocks as the potential stocks which can have good growth in future as compared to FMCG

the over priced stocks at 30% as compared to FMCG which has 40%

of overpriced stock and IT around 45.5% which shows a threat of stocks price crashing in

stocks in the percentage as shown

Gain in the healthcare sector is 10.9% over the period of four months as compared to FMCG

4.2%) hence showing a better investment option in the healthcare sector.

/E ratio analysis shows that healthcare indexes amongst the selected stocks has 50% of

stocks as the potential stocks which can have good growth in future as compared to FMCG

the over priced stocks at 30% as compared to FMCG which has 40%

of overpriced stock and IT around 45.5% which shows a threat of stocks price crashing in

stocks in the percentage as shown

Gain in the healthcare sector is 10.9% over the period of four months as compared to FMCG

stocks as the potential stocks which can have good growth in future as compared to FMCG

the over priced stocks at 30% as compared to FMCG which has 40%

stocks in the percentage as shown

References:

1. http://www.ibef.org/industry/healthcare.aspx

2. http://www.bseindia.com