The Bharatiya Janata Party’s (BJP’s) win in the Indian elections could pave the way for a boost in infrastructure spending, according to Franklin Templeton Emerging Markets Equity’s Sukumar Rajah. If his prediction that infrastructure sector will do well, then it means infrastructure mutual funds may be a good pick. Thematic bets work wonder when the timing is correct.
“We expect positive market reaction to be mostly limited, as the BJP victory seemed largely priced in. Although we believe some obstacles remain on the pathway to the economic reforms Modi has promised, we expect the BJP to work towards its election promises once the dust settles in New Delhi. Modi’s manifesto included a $1.44 trillion boost to infrastructure, and a $10.5 billion cash injection into the farming industry. He’ll push for policy continuity with his initiatives,” says Rajah, Senior Managing Director, Director of Portfolio Management, Franklin Templeton Emerging Markets Equity.
Tsunamo for Infra
Many of the policies Modi put in place since he came to power in 2014 have underpinned India’s economic growth, and experts like Rajah expect the infrastructure thrust to continue. Many of the initiatives are at the state level, where resources have driven Modi’s ambitious infrastructure program, particularly for transport such as roads, railways, waterways and airports.
“Modi’s infrastructure push to improve water management will also provide a critical step in developing several cities. It involves installing infrastructure that can create hydropower from large dams and provide reliable irrigation for land,” says Rajah.
Franklin Templeton see signs that could lead to an increase in corporate investment through rising capacity utilisation, which indicates demand in the economy. Higher capacity typically leads to company expansions to meet increasing demand.
Buy infra MFs?
Over the long-term, infrastructure focussed mutual funds have not done well. In fact, over the last 5 years, this category of funds is the third worst performer in equity fund categories (the worst is international MFs and the second worst is pharma MFs).
Here are are the list of 10 biggest infrastructure focussed equity mutual funds
|Fund||1-Year Return (%)||Net Assets (Rs Crore)|
|L&T Infrastructure Fund||-6.54||1,868|
|Reliance Power & Infra Fund||-8.09||1,420|
|UTI Infrastructure Fund||2.1||1,329|
|Franklin Build India Fund||10.04||1,256|
|ICICI Prudential Infrastructure Fund||0.9||1,247|
|DSP T.I.G.E.R. Fund||0.09||1,156|
|IDFC Infrastructure Fund||-10.76||925|
|HDFC Infrastructure Fund||-8.51||828|
|Sundaram Infrastructure Advantage Fund||-2.59||597|
|Aditya Birla Sun Life Infrastructure Fund||-4.96||580|
* All regular plans Data as on May 23, 2019
While the biggest funds ie. L&T Infrastructure Fund and Reliance Power & Infra Fund have sported losses in last 1 year period, UTI Infrastructure Fund and ICICI Prudential Infrastructure Fund have posted slim gains.
The surprise has been Franklin Build India Fund, with its over 10% gains during this period.
RupeeIQ take – If the government really continues its push on infrastructure, this could be a good bet for long-term unless execution and planning are poles apart. With the political risk over markets now receding fast, retail investors could focus on a few themes. One of them is definitely infrastructure thematic stock funds.
As we have said before, themes work in cycles. Unless you catch a theme when a cycle is starting, you may be stuck with non-performers for quite some time. Infra funds are expected to do well. Wait for implementation to happen if you feel unsure about investing in infra MFs right away. Use the SIP way to build positions.
Disclaimer – Please note that investors are requested to consult their financial, tax and other advisors before taking any investment decision.