The Hindu Business Line : Reliance Diversified Power Sector: Invest

Investors with an appetite for risk can consider buying units in Reliance Diversified Power Sector Fund. With prospects for the sector appearing strong over the next couple of years, this fund may be a good vehicle to ride the energy theme.

The scheme holds stocks across power equipment manufacturing, power generation, transmission and distribution segments. Investors should, however, avoid holding this fund as part of their core portfolio and restrict exposure to less than 10 per cent of their equity investments, given its concentrated nature.

Reliance Diversified Power has not only generated returns superior to most other equity funds but has also demonstrated consistency in performance since its launch in April 2004. The fund’s return of 60 per cent since inception far outpaces its benchmark’s (India Power Index) return of about 40 per cent.

Suitability: Investors, however, need to take note that the fund house has so far enjoyed an early-mover advantage, as the scheme started off just as the Government placed greater thrust on spending in the sector and brought about a nu mber of regulatory changes. Replicating such returns over the next three-five years may, therefore, be difficult and investors should tone down their return expectations. In addition, being a sector fund, its performance is subject to the ups and downs of the sector. Performance: The fund has returned 77 per cent over the last one year, outperforming the majority of diversified and thematic funds. It has also outperformed comparable theme funds (which are more diversified) such as U TI Infrastructure and DSPML T.I.G.E.R over this period. A comparison with the S&P CNX 500 reveals that it has outpaced the broad market 55 per cent of the time (on a monthly rolling return) over the last two years.

The sector: Reliance Diversified Power holds a wide spectrum of stocks in industries ranging from power utilities to power equipment makers and power infrastructure providers and power financiers. This provides some amount of diversifi cation within the sector. The Government has set itself an ambitious initiative through the “power for all by 2012” drive. With the Tenth Plan achieving only 57 per cent of the target, the Government may well have to hasten the spending and implementation process in the next few years. This has resulted in the Government looking at rapid capacity augmentation through a series of measures, including merchant power plants, Ultra mega power projects and other deregulatory measures.

All this translates into business not only for power utilities but also for power equipment makers and T&D infrastructure companies. Similarly, in the alternative energy field, the Government has been encouraging the use of hydel and wind power, with the former being largely unutilised.

Correlating the above to Reliance Diversified Power’s portfolio, the fund appears to have neatly arrayed stocks such as Reliance Energy, Torrent Power and Jaiprakash Hydro Power from the generation and utility industry. It has allocated 30 per cent to equipment makers and infrastructure providers such as Crompton Greaves, BHEL, Areva T&D and ABB, who have been key beneficiaries of the power reforms.

The fund has also ensured that its basket is well balanced with large-sized beneficiaries such as Power Finance Corporation to small transformer players such as Voltamp Transformers.

Being a high-risk scheme, the fund reserves the flexibility to move between cash and debt. It currently holds 29 per cent in debt and cash. Mr Sunil Singhania manages the fund. NAV per unit is Rs 46.2

More Stories on : Mutual Funds | Recommendation | Power

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page