The Hindu Business Line : Tata Infrastructure Fund: Hold

INVESTORS can retain their holdings in the Tata Infrastructure Fund(NAV Rs.16.2). Fresh exposures to the fund can be avoided for now, as the fund is yet to notch up a track record, having been launched just a year ago. The fund has potential to create long-term value, as the prospects for the infrastructure sector continue to be bright.

Tata Infrastructure has about 60 stocks spread across various industries in the infrastructure sector. As of December 2005, industrial capital goods, construction and cement were the top three sectors that accounted for nearly 50 per cent of the fund's net asset value. Stocks such as Siemens, Jaiprakash Associates and Crompton Greaves fetched good returns on the portfolio over the last quarter. The fund is also likely to benefit from the current buoyancy witnessed in cement stocks as a result of price increases in select regions.

Stocks in the telecom and petroleum segment have dragged the performance of the fund. Bharti Tele-Ventures and Neyveli Lignite Corporation have put up a lack-lustre performance over the last quarter.

Business conditions for domestic construction companies appear favourable with the huge order flows from the Central and State governments for road and irrigation works.

In the power sector, the recent notification on the National Tariff Policy may provide a fillip to the power reforms. The policy guidelines are likely to have a positive impact on companies such as NTPC, CESC and Reliance Energy, so far laggards in the fund's portfolio.

Tata infrastructure appears to follow a buy-and-hold strategy for a majority of stocks in its portfolio.

This approach may be required for construction and capital goods stocks, which sometime have long gestation period for order books to translate into revenues.

The average price-earnings ratio of the fund's portfolio is 25. This is a reflection of the multiple commanded by most mid- and large-cap engineering stocks in the infrastructure sector.

A comfortable order backlog position of a majority of the capital goods and construction stocks in the portfolio lends visibility to returns.

Thematic funds carry a higher risk profile than diversified funds, and Tata Infrastructure Fund is no exception. The presence of a sizeable number of large-cap stocks may, however, mitigate the downside risks. On most occasions the fund has about 80 per cent of its total assets in stocks with market capitalisation of over Rs 1,000 crore.

Performance: The fund has returned 50 per cent since inception and has outperformed the Sensex, its benchmark. It has, however, lagged similar theme funds such as UTI Basic Industries and DSP ML Tiger over the last year.

Performance over the last six months has, however, kept pace with the above-mentioned funds. Further, the performance over the last quarter is on par with the BSE capital goods index.

Fund facts: The fund was launched on December 2004. Net assets as of December 2005 stood at Rs 759 crore.

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