Core sector funds flavour of the season

Infrastructure is going to the theme for fund houses this season with at least four fund houses, including Lotus, Kotak and JM Mutual Fund planning to launch core-sector funds.

This comes on the back of impressive performance in infrastructure stocks in 2006 and in the first seven months of this calendar.

Some funds such as DSP-Merrill Lynch, ICICI-Prudential, UTI Mutual Fund and Tata Mutual Fund, which already have a core sector fund, are giving impressive returns to investors.

These funds have performed better than normal diversified equity funds, said analysts.

ICICI Prudential has emerged as the best performing infrastructure scheme with 66.59 per cent returns in the past one year. It has also given absolute returns of 18.9 per cent since January this year which is much better as compared to Pru ICICI's dynamic growth fund's 7.8 per cent returns during the same period. DSP Merrill Lynch's Tiger fund and UTI's infrastructure fund have given returns of 63.44 per cent and 60.44 per cent respectively on annual basis.

India is set to see multi-billion spending in building roads, ports and airports, which will boost orders for companies in the infrastructure sector.

India's top engineering and construction firm Larsen & Toubro recently announced it will launch a $1 billion infrastructure fund to promote various infrastructure projects in India.

Infrastructure Development Finance Company (IDFC) raised $519 million through the sale of shares to institutional investors overseas earlier this year early this month, besides, setting up a $5 billion infrastructure fund along with New York-based Citigroup and Blackstone.

SBI Mutual Fund recently collected Rs 2, 356 crore from their recently launched infrastructure fund which got an overwhelming 6.7 lakh applications during the NFO period.

Says Sanjay Sinha, chief investment officer at SBI Mutual Fund: "The huge response to infrastructure sector is because of a combination of two factors. Firstly, the size of opportunity here is very big. Secondly, the government's expenditure through PPP(Public private partnership) route has been pegged at 14 lakh crore in the 11th five year. I can see intense activity happening in this sector in the coming 1-2 year with large companies already present there."

From January to June, Tata's infrastructure fund has given absolute returns of 17.3 per cent, UTI Infrastructure fund 14.5 per cent and DSP Merrill Lynch's Tiger Fund 18.3 per cent which is much better than diversified equity funds from the same stable.

Almost all the infrastructure companies on the BSE have been trading 15 per cent higher on an average than what they were a month ago.

R Rajagopal, chief investment officer from DBS Cholamandalam Mutual Fund is also overweight on this sector as lot of investments are happening in this sector and this is the reason they are going to launch an infrastructure fund.