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Funds Eye Infra Boom

Fortune may smile on funds invested in infrastructure stocks

This may be the situation when the advantage goes to the first mover. Those equity funds partial to the infrastructure sector in their investments may have a stronger hand going forward.

With the Congress-led UPA formation coming back to power at the Centre, this time with a tangible majority, expectations are that infrastructure spending by the government will get a big boost – funds will flow into the sector to pump-prime the economy in the current slowdown. From airports, railroads, ports to roads and much more is slated for a huge infusion of funds that will not just make the road to recovery in all sectors smoother, easier and faster, but will also give jobs to millions and put enough money in their pockets to spur demand across the board.

Whether that is raised from domestic sources or foreign, via the more credible foreign direct investment route is still open to conjecture, but ideally, both parts will be expected to contribute wholesomely.

Prime Minister Manmohan Singh is already on record for calling out for foreign investment in infrastructure, even naming a figure -- $300 billion. The Planning Commission has also formulated a mechanism for increasing Indian private sector participation in the sector. The framework for the same is in place and is waiting for the new government to carry it forward. Faster implementation of policies wouldn’t be a problem, given the near-majority win at the polls.

Going forward, if most, if not all, of these eventualities come to pass, infrastructure stocks could well become the hottest on the bourses. A huge rally in them would be a foregone conclusion with government’s increased spending to boost the sector.

Consequently, arguing from a mutual fund perspective, funds that have a significant exposure to the sector will be expected to perform better and consequently, investors too will get to benefit from this.

Since the May figures will be available at the end of the month, we decided to jump the gun and look at the current situation on infrastructure stocks in mutual funds. Going by the April portfolios of funds, it is apparent that funds expressly dedicated to the infrastructure theme were not particularly enthusiastic about construction stocks, pre-election. Barring two infrastructure funds--Sundaram BNP Paribas CAPEX Opportunities and Taurus Infrastructure, rest had an allocation of less than 10 per cent to the sector. In fact, out of all equity funds, just ten funds had an allocation greater than 10 per cent.

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While in terms of invested amount, as of April 30, 2009, DSPBR T.I.G.E.R. had the highest amount of Rs 203.81 crore invested in the sector; JM HI FI was the fund with the highest allocation of its assets at 16.79 per cent. It was followed by Magnum Emerging Business (16 per cent), JM Basic (14.07 per cent), Magnum Global (13.26 per cent) and Sundaram BNP Paribas CAPEX Opportunities (12.68 per cent).

Needless to say, and looking forward, these funds are well-positioned to take advantage of a likely scenario where infrastructure stocks are expected to perform above the mark with a significant portion of their portfolios invested in the sector and that too at lower prices since the stock prices have shot up now after the declaration of election results.

Furthering Fortunes
Fund    Net Assets in Infra (%)
JM HI FI   16.79
Magnum Emerging Businesses   16
JM Basic   14.07
Magnum Global   13.26
Sundaram BNP Paribas CAPEX Opportunities   12.68
Taurus Infrastructure   11.99
Magnum Midcap   11.94
Sundaram BNP Paribas Select Midcap   11.82
Tata Service Industries   11.03
Escorts Growth   10.12
Sahara Infrastructure Fixed Pricing   9.32
DSPBR T.I.G.E.R.   7.81
AIG Infrastructure and Economic Reform   6.48
Tata Infrastructure   5.5
UTI Infrastructure   5.21
Birla Sun Life Infrastructure   4.76
Canara Robeco Infrastructure   4.65
ICICI Prudential Infrastructure   3.4
*Data as of April 30, 2009