In conversation with Chintan Haria, Head-Product Development & Strategy, ICICI Prudential AMC

Presently, the equity market seems to be quite volatile. So, is there any correction on the way? How should investors approach investing in equity mutual funds in such volatile times?

The Indian equity market has been under pressure off late with the rampant spread of Coronavirus across the country. Given that this is an evolving situation, the near-term equity market sentiment remains weak. Once the pandemic comes under control through vaccinations, a recovery in growth momentum is expected. As the accommodative stance of the US Federal Reserve is likely to continue for some time, we believe that there will be a period of cyclical economic recovery. Apart from the pandemic-induced challenges, the real risk to the market will be when the US Fed raises rates or rolls back quantitative easing. Any such development is likely to trigger a correction across the US and other global markets. Therefore, from here on, we believe that the room for volatility is very high. As a result, it becomes all the more important to adhere to asset allocation discipline, which can be done via balanced advantage or dynamically managed asset allocation schemes.  

Recently, you launched ICICI Prudential Healthcare ETF, how is it different from ICICI Prudential Pharma Healthcare & Diagnostics (PHD) Fund?

As the name suggests, ICICI Prudential Pharma Healthcare & Diagnostics (PHD) Fund is an actively managed thematic fund that can invest in companies engaged in pharma, healthcare & diagnostic whereas ICICI Prudential Healthcare ETF is a passively managed fund that shall invest in the constituents of Nifty Healthcare index in the same weightage as they have in the index.  

What drives you to remain bullish in the healthcare sector?

Apart from pandemic highlighting the need for a robust healthcare system, there are several growth drivers for the healthcare industry. To begin with, government initiatives like Ayushman Bharat intend to provide healthcare access to over 50 crore citizens. In order to address this requirement and more, over $200 billion is likely to be spent on medical infrastructure by 2024. Also, with life expectancy set to exceed 70 years by 2022, the need for increased healthcare support is a must. The necessity for better diagnostic and imaging centres along with advanced medicines & surgeries is likely to increase in the times ahead. Lastly, growth in awareness of medical insurance is another driver for the healthcare sector. Currently, only 20 per cent of the population has medical insurance coverage. With the rise in income and increasing urbanisation, this percentage is likely to increase.

On the valuations' front, share your thoughts on the healthcare sector?

Healthcare is generally considered to be a defensive sector and the encouraging long-term growth prospects may support the current valuations.

ICICI Prudential Healthcare ETF tracks NIFTY Healthcare TRI, which is quite a concentrated portfolio. What risk management practices do you adopt?

Nifty Healthcare TRI consists of 20 stocks from the healthcare space, which are selected from Nifty 500 universe. From a risk point of view, stock weightage in the index is calculated based on its free-float market capitalisation, such that no single stock shall be more than 33 per cent and weightage of top three stocks cumulatively shall not be more than 62 per cent at the time of rebalancing.
 
Since it is a sectoral ETF, what portion of a moderate risk-taking investor's portfolio should go to such funds? 

As this sector is a defensive play, an investor may consider allocating 5 per cent to 10 per cent of their corpus in ICICI Prudential Healthcare ETF for a long-term.