Health is wealth: A low-cost option to boost your MF portfolio

Lakhs of people, suffering from cancer and non-communicable ailments, die each year because of insufficient access to healthcare services. The Covid pandemic has brought out the urgent need for hospitals and has emphasised the importance of the healthcare sector and its inter-linkages with other key sectors of the economy. There are 70,000 Ayushman Bharat centres currently operational in India, which aim to provide primary health care services to communities closer to their homes.

The numbers speak for themselves. Healthcare industry in India is projected to reach $372 billion by 2022. Hospitals are the bedrock of medical infrastructure. The hospital industry in India, that accounts for 80 percent of the total healthcare sector and is expected to reach $132 billion by 2023, growing at a CAGR of 16-17 percent. Given the large population and lack of quality medical care, the hospital sector offers significant headroom for long-term growth especially in the backdrop of emergence of new technologies such as telemedicine, robotic surgeries and artificial intelligence.

India’s diagnostics industry is currently valued at $4 billion, but that is just the tip of the iceberg. Dedicated organized diagnostic players currently account for less than 15 percent of the overall pathology industry. Wider acceptance of testing services outside hospitals, deeper push into tier 3-4 locations as well as rural heartland is likely to be the next leg of growth.

It is estimated that over $200 billion is likely to be spent on medical infrastructure by 2024 as most Indians pay for their own medical expenses, which is a trigger for medical insurance. This apart, life expectancy is likely to cross 70 years by 2022, leading to further requirement of healthcare services.

Apart from all these, India also is a high-quality manufacturing base catering to global demand for generic drugs and vaccines. As global pharma companies look to diversify their supply chains from China, Indian firms are bound to fit in the China + 1 plan to meet global needs.

While all of these developments are likely to play out, how can an investor stand to gain from them? The answer to that lies in taking exposure to funds where healthcare is the investment universe.

Actively managed healthcare funds go through the process of selecting stocks when it comes to portfolio construction and there are multiple offerings on this front. On the other hand, there are relatively low-cost index-based products available as well. One of the prominent indices in the healthcare space for ETFs is the Nifty Healthcare index. The index is designed to reflect the performance of the healthcare companies and comprises 20 tradable, exchange listed companies.

Over the last decade, the Nifty Healthcare index has outperformed the Nifty 50 index in 6 out of 10 years. The factor which has helped the performance is that healthcare stocks come with lower volatility, which means lower drawdowns during times of crisis. The benefit of taking the ETF route for investment is that the offerings is listed on the stock exchanges and are available for one to buy or sell at real-time NAV.

Moreover, the index is rebalanced periodically reflecting the changing fortunes of that space. And finally, ETFs tends to be cheaper than actively managed funds as it simply replicates an underlying index. As a result, a healthcare ETF emerges to be a low-cost strategy to make gains for the potential this space offers.

Given the rising health problems, poor lifestyle choices and epidemics the healthcare sector has a strong potential to grow steadily in the coming decade. Hence, investors who are ready to stay invested can consider taking exposure to this theme in a cost-effective manner through the recently launched healthcare ETFs by prominent AMCs in the Indian market.