The Covid 19 pandemic has made us realise the importance of good health. Timely and effective diagnostic tests have helped us beat Covid with limited damage. Healthcare sector becomes very important for any nation in this pandemic.
If we look at the performance of the overall healthcare industry in the past 5 years then, the S&P BSE Healthcare Index has offered decent returns of 65.63% as on 2nd May 2022. Moreover, during the Covid 19 pandemic, the healthcare index offered an absolute return of 90% from March 2020 to March 2022.
However, in the past year, the tables have turned. The S&P BSE Healthcare Index has offered only a mere return of 2.78% whereas Nifty has offered a return of 16.87% during the same time as on 2nd May 2022. Not just that, the stocks of the sector have also taken a hit. Dr Lal PathLabs Ltd is down by 27.58% in the past one year (as of 2nd May 2022). Another renowned healthcare stock, Metropolis Healthcare Ltd is down by 20.39% during the same duration. Not just that, there are many other healthcare stocks that are currently declining.
So, what might be the reason behind this? To understand it better, you need to first understand the healthcare industry better. So, let’s begin.
- Diagnostic
The diagnostic sector is a major part of the healthcare industry. The diagnostic sector plays the role of an information intermediary. The role of the diagnostic company is to offer useful information for accurate diagnosis and treatment of diseases. So, whenever you visit a clinic for a blood test or magnetic resonance imaging (MRI) then that clinic is said to be a diagnostic center.
Now, the diagnostic industry is widely spread. There are unorganised players (47%), hospital-based labs (37%), and organized players (~16%).
As multiple players are offering the same test at different prices. In such a situation, patients often prefer to go to a clinic that gets the test done at a comparatively cheaper price. Hence, the challenge that diagnostic players face is the pricing pressure. So, players often focus on acquiring more patients so that their profit margin increases contributing to the increase in total revenue.
- Medical devices, equipment, and hospital supplies manufacturers
These players focus on manufacturing products for the healthcare sector. They make surgical instruments, dental equipments, laser machine and a lot more. They also manufacture hospital beds and other equipment required in the hospital.
- Medical insurance players
Medical insurance players provide medical insurance or similar services to their patients. This sector includes players like health maintenance organizations (HMOs), companies which offer medicare services, healthcare consultants and healthcare staff recruitment agencies.
- Pharmaceutical segment
The pharmaceutical segment is an important part of the healthcare industry. This sector consists of players that produce over-the-counter (OTC) drugs, prescription drugs, biopharmaceutical drugs, and generic drugs.