X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2019 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Should You Bet On Infrastructure Funds Again? - Outside View by PersonalFN

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

Should You Bet On Infrastructure Funds Again?
May 16, 2019

Infrastructure sector directly contributes to the growth story of Indian economy. Increased spending backed by government reforms/policies invigorates the country's overall development in terms of better roads, transport ways (railways, airports, highways), ports, power & energy, and rural & urban housing. Basically, an uptick in infrastructure shows signs of upliftment in the lives of citizens' comfort and boosts the economy.

Recently IBEF, reported...

  • 'In 2018, India ranked 44th out of 167 countries in World Bank's Logistics Performance Index (LPI) 2018. Foreign Direct Investment (FDI) received in Construction Development sector (townships, housing, built up infrastructure and construction development projects) from April 2000 to December 2018 stood at US$ 24.91 billion, according to the Department of Industrial Policy and Promotion (DIPP). The logistics sector in India is growing at a CAGR of 10.5 per cent annually and is expected to reach US$ 215 billion in 2020.'

Albeit, a large part of the Infra sector in India is linked to government spending requires a steady flow of liquidity.

In the Interim Budget 2019, presented by Mr Piyush Goyal, proposed Rs 4.56 lakh crore (US$ 63.20 billion) for the sector; out of which, for railways it proposed at Rs 64,587 crore in 2019-20.

Schemes like Udaan, Housing for All, and Digital India are driving the infrastructure sector. But the debt overruns and project delays are indicative of stagnation.

Despite the public-private partnership and increased spending for uplifting the sector or fast-tracking various projects of highways, airports, etc. the sector has witnessed a subdued performance.

--- Advertisement ---
What's Common Between Four of the World's Top Five Companies?

If you look at the four of the world's top five companies by market capitalisation – Apple, Alphabet (Google), Amazon, and Microsoft, you'll find something amazing.

They are using one powerful strategy to scale their business all over the world, without any major costs involved.

Even Nike, Uber and Netflix are using the same strategy to kill their competitors mercilessly.

Want to know which Indian companies are using this strategy?

Click here and see yourself…
------------------------------

Besides, the liquidity is tight and depends on the interest rate for borrowing of funds. Currently, though easing of RBI's monetary policy has potential to support growth, the recent cuts in repo rate are yet to transmit to the weighted average lending rate of banks; thus, the effects of the easing on investment activity are yet to be manifested.

Graph: Repo rate


Another point to note is that the Infrastructure sector is cyclical is nature, so when the rates are up, the borrowing cost goes up, which in turn slows growth and vice versa.

In terms of investment...

Year 2018 was not a favourable year for Infrastructure sector, but mutual fund managers are optimistic of the future.

Speaking to Economic times, "We have seen a fair amount of activity, in terms of tenders as well as awarding, over the last 10 months. We have close to six lakh crores of tenders on the block which is roughly similar to what we had in the previous year. This number used to be less than three lakh crores probably three years back," says Bharath S, fund manager-Equity, Sundaram Mutual. .

Further he adds, "Private sector capex has been relatively benign in the last three four years. Larger industries like cement, power and steel which were laggards in the last four years have just started seeing some capex activity. When this starts picking up in the full-blown manner, a year down the line that will be much big leeway for companies in the capital goods and infra space."

Investing in an infrastructure fund means investing in a sectoral fund that will invest in equities of construction companies, cement companies, steel companies, and other companies related to infrastructure with an aim of capital appreciation.

But a sectoral fund has its own limitations.

Any government reform addressing the sectoral issue can have a bearing effect on the overall sector. Plus, currently, there isn't a proper benchmark for the sectoral fund in place

For example, a fund with a focus on rural development cannot have a benchmark such as Nifty 500. If a thematic fund is benchmarked with any other generic benchmark, the comparative analysis would not hold weight. Many thematic funds have this issue.

Most of the sector funds tend to gain more during the upswing of the equity markets; whereas during the downswing of the equity markets, they plunge more than the other market cap funds.

Table: How have some infrastructure funds fared?

Scheme Name 1 Year absolute returns (%) CAGR (%)
3 Years 5 Years
Aditya Birla SL Infrastructure Fund -12.51 14.76 15.34
BOI AXA Mfg. & Infra Fund 3.36 14.46 20.41
Canara Rob Infrastructure Fund -5.19 14.30 12.22
Franklin Build India Fund -6.17 13.94 12.69
HDFC Infrastructure Fund -10.86 13.47 12.00
HSBC Infra Equity Fund -19.06 12.81 11.70
ICICI Pru Infrastructure Fund -6.28 11.11 9.90
IDFC Infrastructure Fund -9.67 10.72 13.76
Invesco India Infrastructure Fund -7.50 10.30 9.41
Kotak Infra & Eco Reform Fund -12.77 10.12 11.26
Average of Infrastructure Funds -11.16 10.28 11.51
Average of diversified equity funds -3.76 11.77 13.29
Benchmark
NIFTY INFRA - TRI -7.93 7.01 3.07
S&P BSE 100 - TRI 3.19 14.02 11.14
NIFTY 500 - TRI -0.71 13.25 11.82
For illustration purpose only
Data as on May 14, 2019
(Source: ACE MF)

From the table, one can see the performance of top 10 funds have manged to outperform the benchmark for over a period of five years. So, one must consider the investment risk and investment time horizon before investing in an Infrastructure fund. As infrastructure funds fall under an extremely-high-risk, high return spectrum and might cost you adversely if the sector is underperforming.

But if you notice, the average returns of the infrastructure sector, has faltered for the same time frame as compared to the average returns of the diversified equity funds.

When you invest in a portfolio of diversified equity funds, you are investing across market cap and sector. The diversification helps in mitigating the downsides of any sector and provides better returns. It would be prudent to invest in diversified equity funds in congruence to your risk profile and your investment time horizon.

Editor's note: If you wish to select the worthy mutual fund schemes, I recommend you to subscribe to PersonalFN's unbiased premium research service, FundSelect.

PersonalFN's mutual fund recommendations tend to beat the market by a significant margin over long time periods. FundSelect has beaten the market by over 70% in a decade.

Each fund recommended under FundSelect goes through our stringent process, where they are tested on both quantitative as well as qualitative parameters.

With FundSelect, you get access to high quality and reliable funds picked by our research team using their comprehensive S.M.A.R.T. score fund selection matrix.

S - Systems and Processes

M - Market Cycle Performance

A - Asset Management Style

R - Risk-Reward Ratios

T - Performance Track Record

Every month, PersonalFN's FundSelect service will provide you with insightful and practical guidance on equity mutual funds and debt schemes - the ones to Buy, Hold, or Sell.

Our aim is to assist you in creating the ultimate portfolio that has the potential to top the market. If you are serious about investing in a rewarding mutual fund scheme, subscribe to PersonalFN's flagship mutual fund research service FundSelect today!

Author: Aditi Murkute

This article first appeared on PersonalFN here.

PersonalFN is a Mumbai based personal finance firm offering Financial Planning and Mutual Fund Research services.

Disclaimer:

The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

Equitymaster requests your view! Post a comment on "Should You Bet On Infrastructure Funds Again?". Click here!

  

More Views on News

BSE Sensex Surges 526 Points; YES BANK Among Top Gainers (Market Updates)

Jun 20, 2019 | Updated on Jun 20, 2019

Markets all time high analysis : The BSE Sensex Surged 526 Points; YES BANK Among Top Gainers. Find the latest update, special reports and news on all time high gainers of BSE Sensex at equitymaster.com.

Should An Equity Mutual Fund Scheme Hold High Cash Balances? (Outside View)

Jun 20, 2019

PersonalFN explains whether equity mutual funds hold cash balances.

Should You Invest In Sundaram Ultra Short-Term Fund For Your Short-term Needs? (Outside View)

Jun 20, 2019

PersonalFN briefly shares its views about recently launched debt scheme: Sundaram Ultra Short-Term Fund, an open ended scheme.

Does Your Stock Pass the Amazon Disruption Test? (The 5 Minute Wrapup)

Jun 20, 2019

The great global disruptor of our times has set its eyes on India. Are Indian businesses under threat from Amazon?

This Little-Known Opportunity Promises Both Health and Wealth for Your Grandchildren (Profit Hunter)

Jun 20, 2019

The next big opportunity that has the potential to make you both rich and healthy.

More Views on News

Most Popular

7 Stocks That Will Remain Evergreen in this Era of Technological Disruption(The 5 Minute Wrapup)

Jun 13, 2019

We are living in an era of disruption. Are your stocks well equipped to adapt to changes that disruption will bring along?

The Great Indian NBFC Bubble Has Burst but I Will Still Recommend These Safe NBFCs(The 5 Minute Wrapup)

Jun 11, 2019

One chart that predicted the NBFC crisis back in 2016.

Kenneth Andrade Would Like Our Real Estate Stock Recommendation with Triple Digit Upside(The 5 Minute Wrapup)

Jun 12, 2019

This real estate stock recommended in Smart Money Secrets offers the most favourable upside potential.

Why Modi 2.0 Will Be Great for These 7 Stocks(Profit Hunter)

Jun 10, 2019

The government's focus on Infra, electricity, water for all will be the key factors for Sensex 1,00,000.

Why I Believe Smallcaps Will Catch up to the Sensex(Profit Hunter)

Jun 14, 2019

Smallcaps have gone nowhere even as the Sensex makes new all-time highs. Find out why Richa believes this a good opportunity to invest in smallcaps.

More

Get the Indian Stock Market's
Most Profitable Ideas

How To Beat Sensex Guide 2019
Get our special report, How to Beat Sensex Nearly 3X Now!
We will never sell or rent your email id.
Please read our Terms

S&P BSE SENSEX


Jun 20, 2019 03:35 PM

MARKET STATS