23 infrastructure funds have posted an absolute return of 31% in the last three months.
After a lull of six years, infrastructure funds seem to be on the recovery path by delivering robust returns. These funds have delivered an absolute return of over 31% and 32% in three and six month period. Even the worst performing fund has given an absolute return of 21% in three month period which is much higher than any other diversified equity fund. Meanwhile, CNX Infrastructure index has given absolute returns of 27% and 16% for three months and one year period respectively.
Value Research data shows, only equity funds having exposure banking sector have performed slightly better than infrastructure funds in the three and six months period. Experts attribute this to the hopes of economic reforms and stable government at the centre. They expect that these funds to perform better once NDA government comes to power.
Soumendra Nath Lahiri, Head of Equities, L&T Mutual Fund believes that gradual uptick in economic factors and revival activities in a few stalled projects have helped infrastructure funds to deliver better performance. He expects that performance to be sustained if a stable government comes to power.
“Typically, infrastructure funds tend to perform better when the fundamentals of economy improve and rupee appreciates because such funds have exposure to sectors like banks, IT etc. as well. Also, these funds have a potential to outperform other sectoral funds in a healthy economic environment,” said S Naren, Chief Investment Officer, ICICI Prudential Mutual Fund.
Nikhil Kothari of Etica Wealth Management attributed this improvement to macroeconomic recovery and hope of formation of stable government at the centre. He said, “Since infrastructure sector is directly correlated to overall economic growth, the infrastructure funds are faring better returns due to improvement of macroeconomic conditions. Secondly, the formation of stable government at centre will encourage the performance of these funds. Hence, I would recommend allocating up to 2% of client portfolio at this stage. However, such allocation could be increased up to 10% in case NDA forms the next government.”
Vidya Bala, Head - Mutual Funds Research, FundsIndia.com seconds the view and points out that the valuations of infrastructure stocks are very attractive. “Currently, infrastructure stocks have very attractive valuations and are available at a bargain price. Other sectoral funds like FMCG funds, Pharma funds and IT funds have very high valuation at the moment.” She, however, cautioned that only those investors who have a well diversified portfolio and ability to withstand the high volatility of sectoral funds should invest in these funds. She suggested a maximum allocation of 10% of overall portfolio in these funds.
Infrastructure funds have delivered absolute returns of 21% in the last one year. Today, 20 fund houses collectively provide 23 infrastructure funds which together hold assets worth Rs. 6,167 crore as on March 2014.
The largest pie in the infrastructure fund is held by UTI which manages Rs. 1,227 crore followed by ICICI Prudential (Rs. 1,208 crore) and DSP BlackRock (Rs. 994 crore).
