Infra funds make a strong comeback

Increase in Budget spend on roads, housing and electrification helps stocks in the sector

Infrastructure sector funds are back in focus, thanks to their robust performance in recent times. These funds delivered an average return of 37.7 per cent over the last one year, coming third against other categories of funds such as small-cap (45.4 per cent) and FMCG sector funds (40 per cent).

After a stellar performance in 2014, infrastructure sector funds lost sheen in 2015 and 2016. However, they made a strong comeback in 2017. The Nifty infrastructure index gained a tidy 34 per cent in 2017. Within infrastructure, related sectors such as realty sector or construction projects have seen robust traction and have contributed to the spectacular performance of the sector as a whole.

Budget boost

The Centre increased spending on roads, housing and electrification in Budget 2017, which boosted demand from related sectors such as cement, metals and power companies. Among the 22 diversified equity oriented infrastructure funds, Reliance Diversified Power Sector and L&T Infrastructure Fund top the list, delivering extraordinary returns of 48.1 per cent and 47.2 per cent, respectively, over the past one year.

Even investors parking money in infrastructure sector funds down the pecking order would have gained handsomely over the past year. Canara Robeco Infrastructure and Sahara Infrastructure - Fixed Pricing, which come lower down in the list, gained 27 and 31 per cent correspondingly. Franklin Build India, a good performer over the past five years, has delivered 35.3 per cent return in last one year.

Investing a large chunk in mid- and small-cap stocks has boosted the returns of Reliance Diversified Power Sector, which is focused on the energy theme. Also, betting on construction and engineering sectors has paid off.

L&T Infrastructure too, which made similar bets across these themes, has delivered robust returns. This fund is also a consistent long-term performer, delivering an annualised return of 23.7 per cent over the last five-year period.

Franklin Build India, another long-term performer (26 per cent gains over the last five years), is a large-cap focussed fund with more diversification into related sub-sectors.

The fund invests a portion of its corpus in banking as well, which is generally considered part of infrastructure. Funds such as BOI AXA Manufacturing & Infrastructure, IDFC Infrastructure, Sundaram Infrastructure Advantage and HSBC Infrastructure Equity have delivered returns between 38 and 47 per cent in the last one-year time period.

About 80 per cent of the infra schemes have exposure to the stock of Larsen & Toubro, which has delivered 38 per cent returns over the last one year.

KNR Constructions, a small-cap stock, has doubled in the last one year and Honeywell Automation India is another multi-bagger to which some of the funds have exposure. Banking stocks held by infra funds, namely HDFC Bank, ICICI Bank, SBI and City Union Bank, have given good returns.

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