MFs shift focus to infrastructure sector

Around $10 billion is expected to be invested in infrastructure-related projects in the next three years.

The Indian mutual fund industry is aggressively looking at increasing their exposure in the booming infrastructure sector.

The latest to join the bandwagon after Tata mutual fund and DSP Merrill Lynch mutual fund is Prudential ICICI mutual fund, which launched an open-ended infrastructure fund to invest in infrastructure related companies.

According to analysts, around $10 billion is expected to be invested in infrastructure related projects in the next three years, which augurs well for infrastructure companies.

Industry sources suggest that a couple of other mutual funds are also looking at launching infrastructure related sector funds in the coming months.

Explaining the rationale behind launching an infrastructure fund at this point of time, Pankaj Razdan, managing director, Prudential ICICI AMC said, "India's dependence on infrastructure development to maintain its current momentum of growth will be the key driver for growth of infrastructure and related sectors. The projected outlay for infrastructure development by both private and public sectors is sizeable and we see it as a rewarding opportunity for long term investors to leverage upon."

According to Niles Shah, chief investment officer of Prudential ICICI MF, infrastructure related stocks will not be multi-baggers. "But they will give you consistent returns over a longer period of time."

The other funds dedicated to the infrastructure segment, viz, Tata mutual's Infrastructure fund and DSP Merrill Lynch's TIGER (The Infrastructure Growth and Economic Reforms) fund have not done too well recently.

The returns of these funds are lagging behind the benchmark Sensex returns for the past quarter. While Tata Infrastructure fund posted a return of 11.75 per cent for the quarter, TIGER fund returned 15.86 per cent for the same period.

Sensex returns for the same period amounted to 19.75 per cent, while the category-average for diversified funds for the period, stand at 16.91 per cent. However, TIGER fund (52.84 per cent) has outperformed the Sensex (47.66 per cent) for the one-year period.

The fact that both these funds have a more diversified portfolio than other equity funds has seemingly denied them a 'kicker' in their portfolios.

For example, TIGER fund has exposure to 53 stocks, with the highest weightage allotted to Bharat Heavy Electricals at 4.89 per cent. In the same vein, Tata Infrastructure fund has exposure to 66 stocks, with the maximum holding of 2.33 per cent in Reliance Energy. The fund has a cash holding of nearly 24 per cent, as per its June portfolio.

However, fund managers are betting on the fact that stocks in the infrastructure segment should witness good growth going forward. They are also betting on the fact that money will continue to flow into infrastructure development, thus aiding the stock performances in the long run.

According to Ved Prakash Chaturvedi, managing director of Tata Mutual Fund, "If Indian economy has to grow at 7-8 per cent per year, then there has to a renewed focus on infrastructure spending."

Fund managers believe that the growth in the infrastructure sector is just beginning and further consolidation is expected in the sector.

"With order book of most companies fundamentally strong, enough growth opportunity is expected over the next few years," says Chaturvedi.