The fund was launched in April 2004 with the aim of investing in both equity and fixed income securities of companies operating in the power sector or companies associated with the power sector. The fund has a very flexible asset allocation as it can invest all of its assets in equity or debt instruments, or any combination of the two. The fund can even park 100 per cent of its assets in cash.
The fund has delivered exceptional returns since its launch. It has delivered positive returns in all the five quarters of its existence, with the September 2005 quarter being particularly good, when it delivered 32.27 per cent. Since the start of the year till October 2005, it was up an impressive 49.72 per cent.
The fund is skewed towards mid-cap stocks, though large-caps account for more than 40 per cent of the portfolio. In the initial months after its launch, the fund did invest in debt instruments, but since May 2005, they have not figured in the portfolio. It also keeps a large part of its portfolio in cash and equivalents, the allocation to which has remained above 10 per cent for majority of the months. In September 2005, cash accounted for 14.68 per cent of assets.
The restricted universe of stocks has led to a concentrated portfolio, as it holds just around 15 stocks in any month. There are as many as seven stocks which have always been there in the portfolio. Currently, the top three equity holdings account for more than 10 per cent each. Obviously, some of these stocks have appreciated tremendously, thus contributing to the success of this fund. For example, Crompton Greaves and Siemens have always been among its top holdings, and both of them have surged in this period.
Going forward, the fund may continue to do well amid growing emphasis on the power sector. The equipment manufacturers are also witnessing healthy increase in orders. If the Indian economy is to grow steadily at healthy rates, the power sector will have an indispensable role to play. The basic economics are also favourable as demand outstrips supply by an ever increasing margin, thus leaving huge scope for expansion. But under-investment in the sector and slow pace of reforms have been the biggest impediments to growth so far.
However, efforts are now being made to enhance investment in the power sector. Initiatives like progress of Indo-US ties for the development of Indian nuclear industry is also good news for the sector.
With growing realisation of the acute power shortage in the country, we may witness a lot activity in the power sector in times to come, which will stand to benefit Reliance Diversified Power Sector Fund.
This article was originally published on August 24, 2007.
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