The equity markets rallied post the massive victory of the Narendra Modi-led Bhartiya Janata Party (BJP) in the Lok Sabha elections. However, the markets had been rallying since January-February, factoring in the results much before the country even went to the polls. Talks of plans to revive the Indian economy, with the aid of the infrastructure sector, were rife in the corridors of power, following the electoral success of the BJP. In fact, infrastructure-related stocks have already rallied in the past few months. Apart from infrastructure, sectors such as power, transport and logistics might hugely benefit from the turnaround in the economy. In this article, we discuss five equity non-diversified funds that can benefit if the Indian economy starts growing again at an accelerated speed.
ICICI PRUDENTIAL BANKING AND FINANCIAL SERVICES FUND
Anyone with a keen interest in the markets will vouch that the banking and financial services sectors remain the backbone of any economy. These sectors play an important role in the Indian economy as well as the domestic equity markets.
Yet during the last three-four years, these sectors have been under tremendous stress on the back of weak fundamentals and a slowdown in the Indian economy. But now with the BJP coming to power, and anticipation that the worst is behind us, the banking and financial services sector can benefit a great deal from the turnaround.
Factors like stable Indian rupee and peaking out of interest rates might give the much needed relief to these troubled sectors. ICICI Prudential Banking and Financial Services Fund, which started in 2008, has given returns of 20.88% since its launch.
Its one of the very few funds in the banking space, which is five star rated and has beaten the benchmark in the last few years. In the last one year, the fund has given returns of 40%; it gave returns of 19% and 22% in the last three and five years, respectively, beating the benchmark.
One of the biggest advantages of this fund is that it invests a large part of the corpus in private banks like HDFC Bank and ICICI Bank compared to public sector undertakings (PSUs), which have paid them huge dividends.
In the past few years, the performance of PSUs has been poor following their huge cache of non-performing assets (NPAs). The fund has also invested in housing finance, financial services and broking businesses, which gave them an overall exposure to the sector. Investors looking to play the broad finance theme can look at this fund, which has a decent history of solid performance and smart stock-picking abilities.
PINEBRIDGE INFRASTRUCTURE AND ECONOMIC REFORM FUND
Of the dozen funds based on infrastructure out there, PineBridge Infrastructure and Economic Reform Fund stands out. It is one of the very few schemes in the infrastructure category, which have not changed its investment objective even in the worst of times.
Sticking to the mandate has paid handsomely for the fund in the last one year as the fund has managed to give returns of 53% against its benchmark, which gave 34 % returns.The fund invests in companies that may benefit from potential investments in infrastructure and the unfolding economic reforms, without having any bias towards a sector or a market capitalization range.
If we look at the portfolio, we find that it has invested in a wide variety of sectors, ranging from engineering, construction and metals to services. Even in terms of portfolio construction, the fund manager tried to keep the portfolio as concentrated as possible with investments in not more than 20 stocks as on March 14. Unlike other infrastructure funds that invest in sectors like banks and financial services companies, this fund invests purely in stocks that can benefit from economic recovery.
In the last one year, stock picking has helped the fund deliver strong returns. If we dig into the fund, around 70% is invested in a number of mid- and small-cap stocks and the remaining in large-cap stocks. Investors looking for a pure infrastructure fund can invest in this PineBridge scheme. However, its only drawback is that it has a very short history of six years.
FRANKLIN BUILD INDIA FUND
With assets of less than Rs. 100 crore, Franklin Build India Fund is among the top performers in the infrastructure category. In the last one year, this fund has given returns of 56% compared to the benchmark, which gave returns of 34% for the same time frame.
Franklin Build India Fund was launched in the year 2009. Since its inception, the fund has given returns of 15.5%. The performance of the fund can be termed very good, given the situation where many of its peers were down by over 20% to 30% over the past few years.
Though its an infrastructure fund, it has the flexibility to invest in non-infrastructure sectors and this has been its biggest advantage during the last two to three years. Even stock selection has been unusual with top investments in banking and automobile sectors.
But with India set to witness a slew of measures in the infrastructure sector, the fund manager is expected to invest in more infra stocks. The latest portfolio has investments in sectors such as construction, chemicals, energy and communication.
Whenever the going gets tough, the fund manages to position itself as a diversified equity fund. And when there is opportunity in the markets, it invests aggressively in the infrastructure sector. The funds investment is tilted towards structural themes and not cyclical themes.
In the last three years, when the infrastructure sector was under pressure due to policy paralysis, the fund managed to give returns of 21% against other infrastructure funds that gave returns in the range of 3%-10%.
The fund focuses on innovative businesses, quality of management as well as out-of-favour stocks that have strong business fundamentals and model to sustain high growth rates over the long-term. Investors who would like to benefit from the India growth story should invest in this fund with an investment horizon of over five years.
RELIANCE DIVERSIFIED POWER SECTOR FUND
Power is a major sector after infrastructure, which has the potential to become the most important part of the Indian economy. Though there are many power and energy sector funds in India, Reliance Diversified Power Sector Fund is a pure power thematic fund, which invests in power stocks and companies associated with the power sector.
We are all aware of the poor power situation in the country and the need to increase the power generation capacity. The fund was launched in 2004, when the power sector benefited from excellent reforms and developmental programmes, which resulted in the necessary push to the sector. But since the start of 2008-09, India experienced internal and external turmoil, which resulted in difficulties in raising equity and debt for various companies.
But now there is renewed hope that concerns over coal availability and environmental clearance delays will be addressed and this sector might see some revival. The past three to five years have been challenging for the fund because it gave just 3% returns during that time. However, in the last one year it has managed to bounce back with returns of 62%, giving some hope to investors who have stayed in turbulent times.
The fund invests in companies from the power sector, which can be further classified into those operating in the area of power generation, power transmission, power distribution, power trading, power equipment and power technology. Some part of the corpus is also invested in stocks that deal in renovation and modernization of existing power plants and companies financing or funding power projects.
Investors should realize that investment risk of this fund is linked to its business cycle. What could trigger an upside in power sector stocks, will be the lowering of interest rates. The sliding rates scenario will benefit all capital-intensive sectors like power and energy and engineering too.
If you look at long periods, the growth opportunity in the power sector is huge, considering the capacity demand. There is no doubt that the power sector in India has enormous potential to grow from the current levels.
UTI TRANSPORTATION AND LOGISTICS FUND
There are schemes whose returns speak for the funds. UTI Transportation and Logistics Fund, has given returns of 21% to 30% in the last five years and 88% returns in the last one year alone.
UTI Transportation and Logistics Fund is not a pure equity diversified fund. But it invests in stocks of companies engaged in providing transportation services, design, manufacture, distribution or sale of transportation equipment as well as companies from the logistics sector.
First timers should skip such thematic products. But mature investors can invest in such products so as to supplement their overall portfolio. This is one of the only schemes in the industry, which focuses purely on transportation and logistics. With the growth of the Indian economy, transport and logistics has become increasingly important. And such a product can give decent returns over the long term.
The transport and logistics sector is a key sector, which is important for the development of a country. Since the past three decades, the transportation infrastructure of India has undergone a significant change.
While in the 1990s, the demand for transport grew at an annual rate of 8% to 10%, in the last decade, the demand in the transport and logistics industry grew at par with the Indian growth rate. This growth increased demand for practically all transport services.
We all know that for a country like India, an efficient road network is quite necessary for national integration, socio-economic development and for sustenance of the countrys economic growth.
Therefore, this scheme invests in sectors such as automobile, engineering, services and fast moving consumer goods (FMCG). However, the top holding remains entirely in the automobile sector and that has helped the fund to deliver superior returns in the last few years.
This fund focuses more on mid-cap and small-cap companies and follows a bottom-up approach for investments. This can also be another sector that can gain from the India growth story, going forward.
ICICI PRUDENTIAL BANKING AND FINANCIAL SERVICES FUND
Anyone with a keen interest in the markets will vouch that the banking and financial services sectors remain the backbone of any economy. These sectors play an important role in the Indian economy as well as the domestic equity markets.
Yet during the last three-four years, these sectors have been under tremendous stress on the back of weak fundamentals and a slowdown in the Indian economy. But now with the BJP coming to power, and anticipation that the worst is behind us, the banking and financial services sector can benefit a great deal from the turnaround.
Factors like stable Indian rupee and peaking out of interest rates might give the much needed relief to these troubled sectors. ICICI Prudential Banking and Financial Services Fund, which started in 2008, has given returns of 20.88% since its launch.
Its one of the very few funds in the banking space, which is five star rated and has beaten the benchmark in the last few years. In the last one year, the fund has given returns of 40%; it gave returns of 19% and 22% in the last three and five years, respectively, beating the benchmark.
One of the biggest advantages of this fund is that it invests a large part of the corpus in private banks like HDFC Bank and ICICI Bank compared to public sector undertakings (PSUs), which have paid them huge dividends.
In the past few years, the performance of PSUs has been poor following their huge cache of non-performing assets (NPAs). The fund has also invested in housing finance, financial services and broking businesses, which gave them an overall exposure to the sector. Investors looking to play the broad finance theme can look at this fund, which has a decent history of solid performance and smart stock-picking abilities.
PINEBRIDGE INFRASTRUCTURE AND ECONOMIC REFORM FUND
Of the dozen funds based on infrastructure out there, PineBridge Infrastructure and Economic Reform Fund stands out. It is one of the very few schemes in the infrastructure category, which have not changed its investment objective even in the worst of times.
Sticking to the mandate has paid handsomely for the fund in the last one year as the fund has managed to give returns of 53% against its benchmark, which gave 34 % returns.The fund invests in companies that may benefit from potential investments in infrastructure and the unfolding economic reforms, without having any bias towards a sector or a market capitalization range.
If we look at the portfolio, we find that it has invested in a wide variety of sectors, ranging from engineering, construction and metals to services. Even in terms of portfolio construction, the fund manager tried to keep the portfolio as concentrated as possible with investments in not more than 20 stocks as on March 14. Unlike other infrastructure funds that invest in sectors like banks and financial services companies, this fund invests purely in stocks that can benefit from economic recovery.
In the last one year, stock picking has helped the fund deliver strong returns. If we dig into the fund, around 70% is invested in a number of mid- and small-cap stocks and the remaining in large-cap stocks. Investors looking for a pure infrastructure fund can invest in this PineBridge scheme. However, its only drawback is that it has a very short history of six years.
FRANKLIN BUILD INDIA FUND
With assets of less than Rs. 100 crore, Franklin Build India Fund is among the top performers in the infrastructure category. In the last one year, this fund has given returns of 56% compared to the benchmark, which gave returns of 34% for the same time frame.
Franklin Build India Fund was launched in the year 2009. Since its inception, the fund has given returns of 15.5%. The performance of the fund can be termed very good, given the situation where many of its peers were down by over 20% to 30% over the past few years.
Though its an infrastructure fund, it has the flexibility to invest in non-infrastructure sectors and this has been its biggest advantage during the last two to three years. Even stock selection has been unusual with top investments in banking and automobile sectors.
But with India set to witness a slew of measures in the infrastructure sector, the fund manager is expected to invest in more infra stocks. The latest portfolio has investments in sectors such as construction, chemicals, energy and communication.
Whenever the going gets tough, the fund manages to position itself as a diversified equity fund. And when there is opportunity in the markets, it invests aggressively in the infrastructure sector. The funds investment is tilted towards structural themes and not cyclical themes.
In the last three years, when the infrastructure sector was under pressure due to policy paralysis, the fund managed to give returns of 21% against other infrastructure funds that gave returns in the range of 3%-10%.
The fund focuses on innovative businesses, quality of management as well as out-of-favour stocks that have strong business fundamentals and model to sustain high growth rates over the long-term. Investors who would like to benefit from the India growth story should invest in this fund with an investment horizon of over five years.
RELIANCE DIVERSIFIED POWER SECTOR FUND
Power is a major sector after infrastructure, which has the potential to become the most important part of the Indian economy. Though there are many power and energy sector funds in India, Reliance Diversified Power Sector Fund is a pure power thematic fund, which invests in power stocks and companies associated with the power sector.
We are all aware of the poor power situation in the country and the need to increase the power generation capacity. The fund was launched in 2004, when the power sector benefited from excellent reforms and developmental programmes, which resulted in the necessary push to the sector. But since the start of 2008-09, India experienced internal and external turmoil, which resulted in difficulties in raising equity and debt for various companies.
But now there is renewed hope that concerns over coal availability and environmental clearance delays will be addressed and this sector might see some revival. The past three to five years have been challenging for the fund because it gave just 3% returns during that time. However, in the last one year it has managed to bounce back with returns of 62%, giving some hope to investors who have stayed in turbulent times.
The fund invests in companies from the power sector, which can be further classified into those operating in the area of power generation, power transmission, power distribution, power trading, power equipment and power technology. Some part of the corpus is also invested in stocks that deal in renovation and modernization of existing power plants and companies financing or funding power projects.
Investors should realize that investment risk of this fund is linked to its business cycle. What could trigger an upside in power sector stocks, will be the lowering of interest rates. The sliding rates scenario will benefit all capital-intensive sectors like power and energy and engineering too.
If you look at long periods, the growth opportunity in the power sector is huge, considering the capacity demand. There is no doubt that the power sector in India has enormous potential to grow from the current levels.
UTI TRANSPORTATION AND LOGISTICS FUND
There are schemes whose returns speak for the funds. UTI Transportation and Logistics Fund, has given returns of 21% to 30% in the last five years and 88% returns in the last one year alone.
UTI Transportation and Logistics Fund is not a pure equity diversified fund. But it invests in stocks of companies engaged in providing transportation services, design, manufacture, distribution or sale of transportation equipment as well as companies from the logistics sector.
First timers should skip such thematic products. But mature investors can invest in such products so as to supplement their overall portfolio. This is one of the only schemes in the industry, which focuses purely on transportation and logistics. With the growth of the Indian economy, transport and logistics has become increasingly important. And such a product can give decent returns over the long term.
The transport and logistics sector is a key sector, which is important for the development of a country. Since the past three decades, the transportation infrastructure of India has undergone a significant change.
While in the 1990s, the demand for transport grew at an annual rate of 8% to 10%, in the last decade, the demand in the transport and logistics industry grew at par with the Indian growth rate. This growth increased demand for practically all transport services.
We all know that for a country like India, an efficient road network is quite necessary for national integration, socio-economic development and for sustenance of the countrys economic growth.
Therefore, this scheme invests in sectors such as automobile, engineering, services and fast moving consumer goods (FMCG). However, the top holding remains entirely in the automobile sector and that has helped the fund to deliver superior returns in the last few years.
This fund focuses more on mid-cap and small-cap companies and follows a bottom-up approach for investments. This can also be another sector that can gain from the India growth story, going forward.
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