MFs See The Fountainhead of Next Rally in Infra Theme
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.