MFs See The Foun­tain­head of Next Rally in In­fra Theme

The Economic Times - - Companies: Pursuit Of Profit -

spend­ing on in­fra­struc­ture and a lower in­ter­est rate regime could im­prove com­pa­nies’ bot­tom lines and boost share prices

In­fra­struc­ture could be the next pop­u­lar theme on Dalal Street with the gov­ern­ment em­pha­sis­ing that money should be used to build as­sets. Mu­tual funds are push­ing dis­trib­u­tors to ask their clients to in­vest in funds that in­vest in in­fra com­pa­nies, which have been lag­gards in the stock mar­ket since 2008. “In­fra is one sec­tor I would rec­om­mend for the next one year. The gov­ern­ment spend­ing is go­ing to rise, val­u­a­tions are rea­son­able and the past re­turns are low, mak­ing it an at­trac­tive in­vest­ment bet,” said S Naren, ex­ec­u­tive di­rec­tor at ICICI Pru­den­tial Mu­tual Fund.

Some fi­nan­cial ad­vi­sors are ad­vis­ing clients to book prof­its in IT and pharma funds and move to in­fra funds.

Fund man­agers are bet­ting that the gov­ern­ment could in­crease spend­ing on in­fra­struc­ture. Nitin Gad­kari, min­is­ter of road trans­port and high­ways, and ship­ping, an­nounced the gov­ern­ment’s tar­get of ₹ 25 tril­lion spend­ing in in­fra­struc­ture over a pe­riod of three years. This amount in­cludes ₹ 8 tril­lion ($120.49 bil­lion) for de­vel­op­ing 27 in­dus­trial clus­ters and an ad­di­tional ₹ 5 tril­lion ($ 75.30 bil­lion) for road, rail­ways and port con­nec­tiv­ity projects.

Also, if the Re­serve Bank of In­dia (RBI) cuts rates, it would ben­e­fit sev­eral ail­ing in­fra­struc­ture com­pa­nies.

“Lower in­ter­est rates have a di­rect cor­re­la­tion with the prof­itabil­ity of in­fra­struc­ture com­pa­nies,” says Ru­pesh Bhansali, head (dis­tri­bu­tion), GEPL Cap­i­tal. Bhansali sug­gests in­vestors stag­ger their in­vest­ments over the next three months and re­strict in­vest­ments to not more than 10% of their eq­uity port­fo­lio.

ET has com­piled a list of five in­fra­struc­ture funds which fi­nan­cial ad­vi­sors be­lieve could be ben­e­fi­cia­ries of a re­bound in the sec­tor:

L&T In­fra­struc­ture Fund AUM: ₹ Fund Man­ager:

Top 3 hold­ings:

The fund man­ager fol­lows a bot­tom-up stock pick­ing ap­proach and iden­ti­fies prof­itable com­pa­nies that have a pos­i­tive op­er­at­ing cash flow, do not re­quire too much cap­i­tal for ex­pan­sion and are in delever­ag­ing space. Within this space, the fund man­ager is bullish on ce­ment and has a high 15% weight on th­ese com­pa­nies. In ad­di­tion to this, he is bullish on com­pa­nies which will be ben­e­fi­cia­ries of gov­ern­ment spend­ing on roads, con­struc­tion and de­fence.

Ko­tak In­fra and Eco­nomic Re­forms Fund AUM: ₹ Fund Man­ager: Top 3 hold­ing:

The fund man­ager iden­ti­fies com­pa­nies with low debt on their bal­ance sheets and are be­low the peak of their ef­fi­ciency ma­trix. Cur­rently the port­fo­lio is po­si­tioned to cap­ture the in­creased spend­ing by the gov­ern­ment on in­fra and the re­vival in hous­ing. The fund man­ager is bullish on themes like “Clean In­dia Green In­dia” and is play­ing en­ergy re­tail­ers through it.

ICICI Pru­den­tial In­fra­struc­ture Fund AUM: ₹ Fund Man­ager:

Top 3 hold­ing:

The fund man­agers be­lieve the down­turn in the econ­omy has sep­a­rated the wheat from the chaff in this sec­tor, with com­pa­nies with un­vi­able busi­ness mod­els elim­i­nated. Com­pa­nies which man­aged to sur­vive the down­turn will be the big ben­e­fi­cia­ries as growth picks up in the sec­tor in the next one to two years. Within the space, the fund is bullish on the en­ergy theme with a 30% al­lo­ca­tion.

IDFC In­fra­struc­ture Fund AUM: ₹ Fund Man­ager:

Top 3 hold­ing:

The port­fo­lio is po­si­tioned to cash on the rise in gov­ern­ment spend­ing in in­fra­struc­ture and a lower in­ter­est rate en­vi­ron­ment. The fund man­ager is bullish on the en­gi­neer­ing and con­struc­tion theme opt­ing for com­pa­nies with low debt on their bal­ance sheets, al­lo­cat­ing half of the port­fo­lio to th­ese com­pa­nies.

Ca­nara Robeco In­fra­struc­ture Fund AUM: ₹ Fund Man­ager: Top 3 hold­ing:

A pure play in­fra­struc­ture fund, the man­ager has stuck to his man­date of in­vest­ing in in­fra com­pa­nies and stay­ing away from proxy plays in the sec­tor. The scheme’s fund man­ager avoids com­pa­nies op­er­at­ing in seg­ments that have high en­try bar­ri­ers. The fund man­ager is in­vested in com­pa­nies which have rel­a­tively leaner bal­anced sheets, ro­bust or­der book and high mar­ket share.

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