Assets of infrastructure funds near six-year low

Total assets of infrastructure funds have touched their lowest level in almost six years owing to a slowdown in investment cycle in the past few years.

Assets of these funds touched about R7,600 crore at the end of February 2013, making it the lowest asset level managed since mid-2007, according to a report by Morningstar India. In 2012, total assets managed by infrastructure funds fell by 4%, despite delivering average returns of 25% during the year. At its peak, total assets of these funds had grown to about R20,000 crore in September 2009.

?Infra is quite a diversified theme, and the funds invest in cyclical sectors primarily in capital goods, utilities, power and energy. Companies in these sectors have not done well over the past few years as the investment cycle has not picked up as expected,? said Dhruva Chatterji, senior research analyst, Morningstar India.

Assets of large infrastructure funds have shrunk over the years. For instance, ICICI Prudential Infrastructure Fund, which managed assets in excess of R5,000 crore in March 2008, has seen its assets dwindle to R1,500 crore at the end of February 2013, according to Morningstar India. Similarly, DSP BlackRock TIGER, which managed assets of over R4,500 crore in early 2008, has seen its assets shrink to R1,294 crore at the end of February 2013.

Infrastructure funds had delivered a strong performance in 2006 and 2007, with average returns of 53.38% and 82.73%, respectively. ?Sectors such as capital goods, metals, power and real estate had delivered high-flying returns in these two years, helping infrastructure funds to capitalize on the same,? said Chatterji.

However, these funds got beaten down badly during the financial crisis of 2008, and delivered an average return of about -59% during the year compared with -52% delivered by the Nifty index. The market recovery of 2009, brought these funds back into the limelight as they delivered average returns of about 80% compared with 76% returned by Nifty in the year.

The subsequent years have been challenging. The year 2010 was disappointing for infra funds as they delivered average returns of 7% compared with about 18% returned by Nifty in the year.

The situation worsened further during the market downturn of 2011, and these funds fell by about 33%, trailing the Nifty?s 25% decline during the year. ?Interest sensitive and cyclical sectors were beaten down during the year, taking a toll on infrastructure funds,? said Chatterji.