Mutual funds do rarely market sector schemes or thematic plans that are out of fashion. But IDFC Mutual Fund is taking a contrarian stand in launching an infrastructure fund when those stocks are the least wanted and have been underperforming.
Although the fund does not have a target, it believes that investors may benefit from investing in infrastructure stocks when valuations are off 30% from the peak when the nation needs to build roads, ports and power utilities.
“Policy inaction, higher interest rates and slow activity were the reasons why investors were selling infrastructure stocks,” said Kenneth Andrade, head-investments, IDFC Mutual Fund, which launched an infrastructure equity fund on Thursday. “This will stop once the government starts spending on core sector projects.”
IDFC Infrastructure Equity Fund is open for subscription between February 14 and 28. IDFC Mutual is owned by Infrastructure Development Finance Company which lends only for infrastructure projects.
“Valuations are attractive now and cashflow visibility is very strong in infrastructure and construction companies now,” said Andrade. “We expect some companies in the sector to peak valuations and order book by 2012.”
According to Indian Earthmoving & Construction Industry Association estimates, infrastructure investments totalling Rs 14 lakh crore ($308 billion) are in the pipeline in India over the next five years.
By 2015, up to 25,714 km of roads are expected to be constructed in India at an estimated cost of Rs 2.7 lakh crore while railways are expected to benefit from Rs 1.4 lakh crore in investment over the next five years alone.
In the ports sector, investments to the tune of Rs 83,800 crore are planned while airport infrastructure companies are expected to invest Rs 24,500 crore over the next five years and the power sector is anticipated to receive as much as Rs 9.3 lakh crore for new projects. But infrastructure has been one of the worst hit sectors with policy paralysis and huge debt.
The BSE CG index, which includes top engineering companies and allied industries, and BSE Power Index have fallen 5% and 15%, respectively, over the past one year. The 30-share Sensex has returned about 10% during the considered period.
Mutual funds investing in infrastructure companies have been the biggest casualty of this aversion. Most funds have logged negative returns in the range of 2-20%.
Reliance Infrastructure Fund has fallen over 20% over the past one year. Investors have been reducing their exposure to infrastructure and allied companies on fears of declining foreign direct investment (FDI), low government spending in the second half of 2010, firm interest rates and rising raw material costs.
Source: http://economictimes.indiatimes.com/personal-finance/mutual-funds/mf-news/idfc-mf-takes-a-contrarian-bet-with-infrastructure-fund/articleshow/7472426.cms
Although the fund does not have a target, it believes that investors may benefit from investing in infrastructure stocks when valuations are off 30% from the peak when the nation needs to build roads, ports and power utilities.
“Policy inaction, higher interest rates and slow activity were the reasons why investors were selling infrastructure stocks,” said Kenneth Andrade, head-investments, IDFC Mutual Fund, which launched an infrastructure equity fund on Thursday. “This will stop once the government starts spending on core sector projects.”
IDFC Infrastructure Equity Fund is open for subscription between February 14 and 28. IDFC Mutual is owned by Infrastructure Development Finance Company which lends only for infrastructure projects.
“Valuations are attractive now and cashflow visibility is very strong in infrastructure and construction companies now,” said Andrade. “We expect some companies in the sector to peak valuations and order book by 2012.”
According to Indian Earthmoving & Construction Industry Association estimates, infrastructure investments totalling Rs 14 lakh crore ($308 billion) are in the pipeline in India over the next five years.
By 2015, up to 25,714 km of roads are expected to be constructed in India at an estimated cost of Rs 2.7 lakh crore while railways are expected to benefit from Rs 1.4 lakh crore in investment over the next five years alone.
In the ports sector, investments to the tune of Rs 83,800 crore are planned while airport infrastructure companies are expected to invest Rs 24,500 crore over the next five years and the power sector is anticipated to receive as much as Rs 9.3 lakh crore for new projects. But infrastructure has been one of the worst hit sectors with policy paralysis and huge debt.
The BSE CG index, which includes top engineering companies and allied industries, and BSE Power Index have fallen 5% and 15%, respectively, over the past one year. The 30-share Sensex has returned about 10% during the considered period.
Mutual funds investing in infrastructure companies have been the biggest casualty of this aversion. Most funds have logged negative returns in the range of 2-20%.
Reliance Infrastructure Fund has fallen over 20% over the past one year. Investors have been reducing their exposure to infrastructure and allied companies on fears of declining foreign direct investment (FDI), low government spending in the second half of 2010, firm interest rates and rising raw material costs.
Source: http://economictimes.indiatimes.com/personal-finance/mutual-funds/mf-news/idfc-mf-takes-a-contrarian-bet-with-infrastructure-fund/articleshow/7472426.cms
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