Mutual Funds

Infrastructure funds: On shaky ground

Bhavana Acharya | Updated on March 12, 2018

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It’s been a rough ride for funds with infrastructure as the theme. Heavy and expensive debt, new projects being assigned to select segments and the increasing working capital needed to execute projects on hand are some of the troubles plaguing this sector.

Aside from this, corporate governance-related issues have also hurt stocks in the infrastructure and power segments.

In the past year, barring Franklin Build India, funds built along the infrastructure theme have delivered negative returns. The picture has remained the same over the three-year timeframe as well.

The CNX Infrastructure index has fallen 9 and 14 per cent during the one- and three-year periods, respectively. But a good number of funds have benchmarked themselves against the BSE 100 or the CNX 100, and therefore fall way short in performance. The CNX 100 index has gained 9 per cent in the past one year though it has been flat over the past three years.

Broad mandate

Franklin Build India managed fair returns thanks to its much broader mandate than other infrastructure funds. The fund can invest in any sector that is directly or indirectly related to economic development — infrastructure, agriculture and even social development. The fund’s good stock picks such as Dr Reddy’s Labs, Mindtree, Amara Raja Batteries and Bayer CropScience don’t feature in the portfolios of other funds.

Canara Robeco Infrastructure, while slipping up in the past year, sports a better track record over the three-year period, compared with other infrastructure funds. Its three-year return of -7 per cent places the fund in the top quartile of infrastructure funds.

But the fund has underperformed its own benchmark, the BSE 100. Likewise, the Tata Growing Economies Infrastructure (Plan B) ranks in the top quartile.

Funds such as ICICI Prudential Infrastructure and LIC Nomura Infrastructure have improved their performance in the past year. Both funds upped holdings in telecom stocks, which helped them beat others in the category.

The worst performers in the category are Sundaram Capex Opportunities, Reliance Diversified Power (into which Reliance Infrastructure was merged), and HDFC Infrastructure, all of which have lost over 20 per cent in the one-year period. Returns are at the bottom of the pile in the three-year period, too.

Stock choices

With power and infrastructure stocks losing anywhere between 5 and 77 per cent in the year so far, stock choices were liable to go wrong. Apart from pure infrastructure and power stocks, funds also invest in capital goods, mining, metals and bank stocks. All sectors have fared poorly on the bourses.

Popular picks that haven’t done well include Larsen & Toubro, Coal India, ONGC, Thermax, BPCL and Cummins India. Finance picks include ICICI Bank, HDFC and HDFC Bank. Choices that paid off include Reliance Industries, Bharti Airtel and Idea Cellular.

With key sectors, including power, capital goods and infrastructure set to see stress until the investment cycle improves and interest rates drop, these stocks, and thus the theme, could continue to underperform.

Published on October 26, 2013

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