The Hindu Business Line : Birla Infrastructure Fund: Hold

Investors can hold on to their units in Birla Infrastructure Fund. The fund’s performance is in line with similar theme funds. Its return of 62 per cent over the past one year is superior to the average one-year return of 44 per cent for diversified equity funds.

Going by the spending planned by the Government in the infrastructure sector, this theme may find extended interest over the next few years. However, as Birla Infrastructure has a track record of less than a year-and-a-half, investors may have to wait longer to assess its performance, before considering fresh exposure in the fund.

Suitability: Riding on the construction boom and the capex spending by a good number of companies in the manufacturing sector, infrastructure funds have seen a trail-blazing growth over the past couple of years. These funds have also b een the most hit during periods of market volatility. Further, going by their recent performance, timing stock calls and discovering stocks early appear to be the key to accelerate returns.

There appears to be few other distinguishing features between the portfolio of most infrastructure funds. These funds are, therefore, more suitable for investors with a high risk appetite. Investors may restrict their holding in infrastructure funds to 5-10 per cent of their total assets.

Performance: Birla Infrastructure has returned 34 per cent (on a compounded annual basis) since its launch in March 2006 as against its benchmark S&P CNX Nifty’s return of 28 per cent. We, however feel that given the fundR 17;s portfolio and market cap of stocks, Nifty may not be an appropriate benchmark to gauge true performance.

A comparison with the BSE 200 and BSE 500 was, therefore, done to analyse the fund’s performance. This reveals that since its launch the fund has outperformed both the indices on a monthly rolling return basis, 65 per cent of the times on 11 out of 17 months.

Birla Infrastructure has about 49 per cent of its assets in stocks with a market capitalisation of over Rs 5,000 crore. The fund appears to have consciously reduced this proportion from about 66 per cent in December 2006.

Peers such as ICICI Pru Infrastructure and UTI Infrastructure hold higher levels in large-cap stocks. This difference in strategy may be attributed to the bigger asset size of the peer funds. Birla Infrastructure, with a relatively compact asset size (which has declined over the past year) of Rs 454 crore, appears to retain its flexibility to enter relatively smaller stocks such as Hindustan Dorr Oliver and Torrent Cables.

Portfolio: Top ten stocks account for 40 per cent of the fund’s portfolio. The fund’s exposure to cement stocks increased while holding in banks declined. While most infrastructure funds have been bullish on capital goods, they have been a bit cautious on construction.

Birla Infrastructure, on the other hand, has 11 per cent in construction segment, next only to capital goods. The current stocks in this space appear to hold potential. The fund’s NAV per unit is Rs 14.46.

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