The Hindu Business Line : Reliance Diversified Power Fund: Invest

Investors can consider buying units of Reliance Diversified Power Sector Fund. The fund invests in companies spanning the power generation, transmission and distribution and power equipment businesses. Companies in the power sector hold huge business potential, with the peak power deficit of the country continuing to hover in two-digits. New business opportunities that are likely to arise from India’s nuclear deal with the US could also add fresh impetus to the sector. Current stock market conditions also provide an opportunity for investors to buy a quality basket of power stocks.

With a compoundeded annual return of 50 per cent since its inception in 2004, Reliance Diversified Power Fund has outpaced its benchmark India Power index as well as key market indices over a four-year period. The fund is a top performer, over a three-year time frame too, a challenging period for equity funds. Reliance Diversified Power is a theme fund and, therefore, carries a higher risk profile that may not be suitable for risk-averse investors. Investors can invest in the dividend option to lock into profits from time to time.

Earnings potential

While power stocks have undergone re-rating in valuations during the market rally in 2007, a good number of them have been beaten down during the recent market correction. However, unlike a few other sectors that are unlikely to regain their premium valuations, stocks in the power space continue to hold high earnings potential given the current macro scenario.

For one, the peak power deficit situation remained at a high 14.6 per cent even as recently as the April-June quarter. This has prompted a recent revision in the capacity addition programme under the Eleventh Plan (up by 15 per cent to 90,000 MW). The additional planned capacity translates into new business for the entire spectrum of power companies.

Two, even as the country failed to add even a single megawatt of nuclear power capacity between April-July (according to the CEA report), the waiver received from the Nuclear Suppliers Group is expected to throw open new opportunities .

The fund’s top holdings include Reliance Industries, Larsen & Toubro, Reliance Infrastructure, Suzlon Energy and BHEL. The fund, which has shown high consistency in performance, is available at an NAV that is pretty close to levels a year ago. The NAV per unit under the dividend option is Rs 36.7.

Vidya Bala

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