Indian infrastructure stocks are not cheap after a surge since early March, but could see earnings upgrades later this year, making valuations reasonable, the manager of the country's oldest infrastructure mutual fund said.The environment has turned positive given improved prospects for a push in infrastructure spending after India elected a stable Congress party-led government in April-May polls, said M Venugopal, head of equity at Tata Asset Management.
The fund manager, who oversees about 55 billion rupees ($1.14 billion), including nearly $750 million in three infrastructure funds, said he favoured industrial capital goods, power and construction firms given the opportunity they offered.
"The electoral verdict has given the sector improved visibility and continuity," said Venugopal, whose holdings include engineering firms Bharat Heavy Electrical, Larsen & Toubro and IVRCL Infrastructures & Projects.
"Also, given the uncertain global environment, investors are focused on domestic-led growth and probably infrastructure qualifies the best in this space," he said.
While getting costly and long-term projects finished is the main challenge, the theme will dominate investment in India as infrastructure creation is a key growth driver, said Venugopal.
India estimates it needs about $500 billion to fix its clogged airports, roads and inadequate power supply to continue growing at 9 percent a year to 2012. More than $150 billion of it will have to be funded by the private sector.
The sector suffered a blow last year when the global credit crunch starved Indian infrastructure firms of funds and economic growth slumped.
That led to earnings downgrades, and the BSE capital goods index plummeted 65 percent in 2008, worse than the 52 percent fall in the benchmark index.
Shares have bounced back this year, with Venugopal's Tata Infrastructure Fund gaining 46.9 percent as of June 17, slightly lagging the 50.5 percent rise in the main stock index.
The fund manager, who oversees about 55 billion rupees ($1.14 billion), including nearly $750 million in three infrastructure funds, said he favoured industrial capital goods, power and construction firms given the opportunity they offered.
"The electoral verdict has given the sector improved visibility and continuity," said Venugopal, whose holdings include engineering firms Bharat Heavy Electrical, Larsen & Toubro and IVRCL Infrastructures & Projects.
"Also, given the uncertain global environment, investors are focused on domestic-led growth and probably infrastructure qualifies the best in this space," he said.
While getting costly and long-term projects finished is the main challenge, the theme will dominate investment in India as infrastructure creation is a key growth driver, said Venugopal.
India estimates it needs about $500 billion to fix its clogged airports, roads and inadequate power supply to continue growing at 9 percent a year to 2012. More than $150 billion of it will have to be funded by the private sector.
The sector suffered a blow last year when the global credit crunch starved Indian infrastructure firms of funds and economic growth slumped.
That led to earnings downgrades, and the BSE capital goods index plummeted 65 percent in 2008, worse than the 52 percent fall in the benchmark index.
Shares have bounced back this year, with Venugopal's Tata Infrastructure Fund gaining 46.9 percent as of June 17, slightly lagging the 50.5 percent rise in the main stock index.
The unexpectedly decisive win by the Congress-led coalition has boosted sentiment towards infrastructure, as government plays a key role in creation of infrastructure and stability gives the government a free hand to implement its policies.
Venugopal's firm is seeking regulatory clearance to offer its fourth infrastructure fund, focusing on small and mid-cap stocks.
He said infrastructure firms could see an upward revision in earnings in the second half of the year to March as the sector benefits from India's rapid urbanisation and rising incomes.
Foreign companies that have set up in India, meanwhile, are demanding better roads and more reliable power supplies.
"Despite all that has been done, there is a significant gap between what is available and what is required," said the fund manager, who also holds shares such as top lender State Bank of India and top cellular firm Bharti Airtel.
"The thrust on infrastructure creation would continue for some time and would require a further boost, which hopefully the government would give," said Venugopal.
Venugopal's firm is seeking regulatory clearance to offer its fourth infrastructure fund, focusing on small and mid-cap stocks.
He said infrastructure firms could see an upward revision in earnings in the second half of the year to March as the sector benefits from India's rapid urbanisation and rising incomes.
Foreign companies that have set up in India, meanwhile, are demanding better roads and more reliable power supplies.
"Despite all that has been done, there is a significant gap between what is available and what is required," said the fund manager, who also holds shares such as top lender State Bank of India and top cellular firm Bharti Airtel.
"The thrust on infrastructure creation would continue for some time and would require a further boost, which hopefully the government would give," said Venugopal.
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