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Fund Manager Insight: Huzaifa Husain
August 1, 2014

In an exclusive interview with fundsupermart.com, Huzaifa Husain, Head - Equities, PineBridge Investments, India speaks about PineBridge Infrastructure & Economic Reform Fund.


Author : iFAST Research Team



 Untitled Document

 

PineBridge Infrastructure & Economic Reform Fund became a part of our Recommended Funds in 2012 and there has been no second opinion on the fund since then. This is one of the few infrastructure funds which sticks to its mandate and still continues to beat all the filters in our model to be the best infrastructure fund on our platform. The fund is managed by the soft spoken Huzaifa Husain who believes that his fund's performance will speak for itself.


Huzaifa Husain

Huzaifa Husain, Head-Equities, PineBridge Investments, India

Q. The entire lot of infrastructure funds has seen a run-up in the last few months. Was this only based on expectations or was there any fundamental reason behind this euphoria?

A. Improvement in business sentiment is important before one decides to spend on capital expenditure. Post the declaration of election results, this sentiment started to turn positive. Stock prices are now extrapolating that this will eventually lead to higher investments as has generally been the case historically.

Q. Budget 2014-15 did not have any big bang reforms for the infrastructure sector. How will you rate the budget and how will the measures to boost infrastructure development help your portfolio in the long run?

A. In our opinion there are broadly two kinds of challenges faced by the sector. One is simplification of procedures and clarity in rules and regulations which we feel will be handled by the respective ministries. Second, is to recapitalize banking sector so that their ability to lend money improves which is within the domain of the finance ministry.  Yes, we were disappointed that no concrete proposals were made in this regard in the budget. Yet, we are confident that over time, this issue may be resolved given the huge unmet demand for good infrastructure in the country, and thus in our opinion, the longer term prospects still remain attractive.

Q. A glance through your portfolio shows that you have exited out of the power sector completely in March 2014. When we have a government which is so optimistic on this sector, any reason for this exclusion from the portfolio?

A. We tend to look at this space as composed of developers, constructors and product companies. We had some exposure to developers in the power sector, but given the long cycle nature of the business coupled with high cost of money and fluid regulations, we became quite uncomfortable with these names. On the other hand, we feel any revival is likely to immediately benefit the short cycle plays such as product companies which is where we have focused our attention on.

Q. In the month of July 2011, Industrial Products as a sector had only 4% allocation in the portfolio which over a period of 36 months has become the largest sector. As on June 2014, the exposure of this sector in the portfolio has been to the tune of 33.37%. Can you tell us the reason for this upward bias that we have seen for this sector?

A. As described in the previous section, developers like utility companies are good investments if you want a steady return or want to keep your capital stable especially when the growth in the sector is low. One would want to move to product companies when the cycle turns so as to benefit from the growth. Developers would see the benefits of this growth much later when the projects are commissioned.

Q. You have been positive on cement for some time now. Here, since February 2013, the concentration has been into 2 stocks which are, Shree Cements and UltraTech Cement. Any reason for showing a preference for these stocks, while the largest players in the sector like ACC and Ambuja Cements do not find a place in your portfolio?

A. Cement is a unique commodity. It is probably the cheapest commodity in the world but has characteristics like perishables where neither can you store it for long nor can you transport it cheaply across large distances. Thereby, it becomes a region specific play. The names we own meet our criteria of being a company with a dominant business advantage, run by able management and available at a price we are comfortable with. It is imperative that cement companies expand their capacity without stressing their balance sheets. The names we own have shown that they have been able to successfully do so.

Q. Now coming to the Gas sector, you have moved out of Petronet LNG in January 2014, a stock which has been held on a continuous basis since July 2011.Why have you taken this exit call?

A. We would typically sell a stock either if the fundamentals have changed substantially and/or if we find another name which is relatively a better value. In this specific case, we note that they have expanded capacity but will not be able to fully utilize it even for next couple of years. The fixed costs of this expanded capacity are hurting their earnings. Relative to that, we found companies which would show a positive bias in their earnings growth.

Q. What is so exciting about Indraprastha Gas Limited that this stock is a part of the portfolio since the inception of the fund despite all the ups and downs that it has been going through?

A. The most exciting thing about Indraprashtha Gas is that it is the most boring business! A simple business, dominant because of network effects, selling a clean fuel mandated by the judiciary, investing the cash flow in expanding the network are what attract us to this business. In spite of the regulatory incident which happened couple of years back, the company continues to grow at a reasonable pace. And with the new government in, the city gas companies are likely to get the highest priority allocation of a scarce but a clean fuel. Imagine a business where you can give your customer an option to reduce harmful emissions at a cheaper cost. I think it is very “boringly” exciting!

Q. A small part of the portfolio is concentrated in a company called Kirloskar Brothers Investment Ltd since September 2012. Can you throw some light on this stock?

A. KBIL is the holding company of two infrastructure related companies and available at 70% discount to the market value of those two subsidiaries. It is like buying those two names for thirty paise when they are being valued at one rupee.

Q. What are the 3 points that investors need to keep in mind before entering into PineBridge Infrastructure & Economic Reform Fund?

A. 1. It is a fund which is more dependent on government actions than a diversified fund.
2. It will be more volatile, not necessarily less attractive over the long run, than a diversified fund.
3. It is a pure play on one of the most important sectors, the growth of which will determine the future economic growth of the country.

DISCLAIMER
iFAST and/or its content and research team's licensed representatives may own or have positions in the mutual funds of any of the Asset Management Company mentioned or referred to in the article, and may from time to time add or dispose of, or be materially interested in any such. This article is not to be construed as an offer or solicitation for the subscription, purchase or sale of any mutual fund. No investment decision should be taken without first viewing a mutual fund's offer document/scheme additional information/scheme information document. Any advice herein is made on a general basis and does not take into account the specific investment objectives of the specific person or group of persons. Investors should seek for professional investment, tax, and legal advice before making an investment or any other decision. Past performance and any forecast is not necessarily indicative of the future or likely performance of the mutual fund. The value of mutual funds and the income from them may fall as well as rise. Opinions expressed herein are subject to change without notice.
Mutual Fund investments are subject to market risks. Please read all scheme related documents carefully.

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