The Manmohan Singh government?s push for contra-cyclical spending on infrastructure should make the sector an obvious pick for investors looking for a safe bet. But if you are among the five million investors who prefer the most democratic instrument of the financial markets, the mutual fund, be warned.
Just because a scheme is marketed as an infrastructure sector fund by a mutual fund (MF) does not mean you can ride the highs and lows of the sector by buying its units. The reason is simple?many infrastructure-flavoured schemes are parking a part of their money in sectors that can?t be construed as infrastructure-driven by any stretch of imagination.
Portfolio disclosures of MFs on September 30 shows some infrastructure funds have invested extensively in the banking sector. More surprising are infra funds? investments in stocks like Pfizer, Television Eighteen and Pantaloon Retail (DSP Blackrock MF); Asian Paints, Educomp Solutions and Blue Star (Lotus India MF); Zee Entertainment, ITC and Sun Pharma (HDFC MF).
While analysts differ on whether banks can be considered an infrastructure player, HDFC MF?s chief investment officer Prashant Jain stressed that the scheme?s offer document and marketing material make it clear that the MF would consider banking and financial services as infrastructure. Nearly 20% of HDFC?s Infrastructure Fund is invested in banks. ?We expect infrastructure asset makers, owners as well as financiers to benefit from increased spending,? Jain told FE.
To justify infra funds? investments in sectors like entertainment, fund houses keep their offer documents loosely framed. ?If you read our offer document, you will see we have the flexibility to invest 20-25% in non-infrastructure sectors. Investors don?t walk in blindly,? Jain said.
Incidentally, UTI MF, which launched the first infrastructure fund nearly five years ago, has no exposure to non-infrastructure funds.After it, 16 fund houses have launched as many as 20 such schemes and marketed them with great aplomb by stressing on India?s need to spend $500 billion in world-class infrastructure.
UTI fund manager Sanjay Dongre says, ?If we sell apples to investors, we have to give them apples even if sometimes the theme may not do well. The CNX infrastructure index, which doesn?t include banking stocks, is down 59% since last December. But we have not become opportunistic and moved to sectors like entertainment as it would be unfair to investors.?
So while you should be careful about which infrastructure fund you pick, will the PM?s infra push boost the sector?s revenues and growth in a few quarters from now? Dongre thinks so. ?The world over, governments are resorting to the kind of infrastructure spending the US did in the 1950s for its highways. Infrastructure is bound to benefit,? he says.
