The recent sell-off in hospital stocks could prove to be an attractive entry point, with past episodes of price regulation in 2017 and 2019 eventually presenting buying opportunities, according to Aditya Khemka, Fund Manager at InCred. Khemka remains extremely bullish on the hospital sector, arguing that India's severe shortage of hospital beds and strong demand should continue to support the industry's economics despite periodic regulatory interventions.“Hospital prices corrected proved to be a phenomenal entry point.
Seems like it's a repeat of the cycle,” Khemka said, referring to the corrections seen in 2017 and 2019. He said concerns over price or margin caps are not new for private hospitals. Similar measures were introduced for stents in 2017 and for stents, kneecaps and some medicines in 2019.

Khemka said hospitals operate as platform businesses where patients and doctors come together, with hospitals providing the infrastructure. If regulators cap margins on certain parts of the hospital offering, Khemka expects hospitals to adjust prices elsewhere in the service bundle to protect profitability.
He noted that most listed hospital chains generate a return on equity of around 15-20%, while the cost of capital is assumed to be around 15%.“If the regulators decide to put margin caps on certain portions of that bundle, the other portions of the bundle need to sort of grow up to still maintain profitability,” he said.

Khemka also pointed to the sector's large demand-supply gap as a key reason for his bullish view. India has only around 15 hospital beds per 10,000 people, including government beds, compared with a global average of 35. Developed markets such as Japan and South Korea have around 120 beds per 10,000 people.
He believes this structural shortage means demand for hospital services will remain strong, while periodic regulatory interventions are unlikely to fundamentally change the industry's economics. Medical tourism could provide another growth opportunity.

Khemka noted that India attracts patients from both developed and developing countries because it offers healthcare quality above the global average while keeping costs below the global average. Watch the full conversation hereHe also pointed to the government's proposal to develop medical tourism hubs as a potential boost for the sector.
“We already have an industry recognised by the ministry as an industry which provides above the world average quality and below the world average price, what more do you want?” Khemka said. Overall, Khemka believes the current regulatory concerns should be viewed in the context of the sector's long-term demand potential rather than as a fundamental threat to hospital businesses.

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