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Fund Focus: ICICI Prudential Infrastructure Fund
September 2, 2011

Infrastructure is one of the key sectors that the investors will benefit in the next 5-8 years as over 1 trillion USD is expected to be invested into the infrastructure space. ICICI Prudential Infrastructure fund is the recommended Infrastructure Fund.


Author : Manjunath Gaddi



 Fund Focus: ICICI Prudential Infrastructure fund

Infrastructure is a key sector for any economy. Infrastructure is a broad sector consisting mainly of transportation (land, air and water), telecommunication, energy (Oil and Gas and Power) and finance sub sectors. Good public infrastructure not only directly contributes to robust economic growth but also indirectly enables other sectors contribute more towards economic growth; therefore, good public Infrastructure sector is an enabler for economic growth.

Lack of public infrastructure is one of the key reasons hampering the economic growth of India. However, the government has woken up from its lethargic attitude towards public infrastructure. The focus on infrastructure spending is seen in the budget speech of 2011-12. However, certain bottlenecks remain and the government is working to resolve them from the policy perspective.

Infrastructure as an investment

India is expected to invest $1 trillion in public infrastructure development in its 12th five year plan between 2012 and 2017. The economic survey for 2011-12 states that atleast 50% of this $1 trillion is expected to be made from the private sector. Since, most of the infrastructure projects are mostly monopolistic in nature (ports, roads, etc) investors can expect good returns from Infrastructure investments.

Government has enabled higher inflows directly into the infrastructure space on the debt side in order to meet the huge investments demands in the sector. The government has raised the limit for FII participation into infrastructure debt space from $5 billion to $25 billion in the budget for 2011-12.

This sector holds potential to generate long term returns for the patient investor as infrastructure projects has long gestation periods. Our recommended fund in infrastructure space is ICICI Prudential Infrastructure fund.

Investment strategy of ICICI Prudential Infrastructure fund

The ICICI Prudential Infrastructure fund invests across market cap, but has a high concentration towards large caps. Between February 2008 and July 2011, the fund on an average had over 68% exposure of the portfolio to large cap stocks. Exposure to mid cap stocks was on an average close to 8.3%, while exposure to the small cap stocks was limited to around 4.7% between February 2008 and July 2011. Cash holding on an average was close to 8.4% between February 2008 and July 2011. The fund does take exposure to derivatives. However, much of the exposure is in futures while the use of options is sporadic. The exposure to futures was on an average of 5.7% between February 2008 and July 2011.

Banking, Refineries, Power generation/distribution, telecom and Oil exploration sectors are the top five sectors to which the fund has exposure to. Between February 2008 and June 2007, Banking has an average exposure of 12.7% of the portfolio, followed by Refinery at 10%, which is further followed by power sector having 9.7%, telecom  8.1% while Oil exploration sector having 6.4% exposure.

Investment strategy of ICICI Prudential Infrastructure fund

The ICICI Prudential Infrastructure fund invests across market cap, but has a high concentration towards large caps. Between February 2008 and July 2011, the fund on an average had over 68% exposure of the portfolio to large cap stocks. Exposure to mid cap stocks was on an average close to 8.3%, while exposure to the small cap stocks was limited to around 4.7% between February 2008 and July 2011 . Cash holding on an average was close to 8.4% between February 2008 and July 2011. The fund does take exposure to derivatives. However, much of the exposure is in futures while the use of options is sporadic. The exposure to futures was on an average of 5.7% between February 2008 and July 2011.

Banking, Refineries, Power generation/distribution, telecom and Oil exploration sectors are the top five sectors to which the fund has exposure to. Between February 2008 and June 2007, Banking has an average exposure of 12.7% of the portfolio, followed by Refinery at 10%, which is further followed by power sector having 9.7%, telecom  8.1% while Oil exploration sector having 6.4% exposure.

Performance

Infrastructure sector’s  performance as a whole has been continuously lagging since the greater part of 2010 till today.

Chart 1: Performance of ICICI Prudential Infrastructure fund, other top performing infrastructure funds and CNX Nifty.

This can be seen in chart 1. CNX Infrastructure is the benchmark for this fund. If you had invested INR 10,000 into this fund on 30 April 2008, this INR 10,000 would have been worth INR 8870 as at 30 August 2011.This laggard performance is actually an investment opportunity in disguise for the long term investor. The prospects of this sector are bright as huge investments are made into the infrastructure space by both private investors and government.

Table 1: Performance of funds  in percentage

Scheme Name
6 Months
1 Year
3 Years
5 Years
AIG Infrastructure and Economic Reform Fund
6..46
-5.59
9.52
DSP Black Rock India T.I.G.E.R Fund
-5.05
-19.17
3.47
8.71
ICICI Prudential Infrastructure Fund
-6.88
-13.58
1.39
11.70
CNX Infrastructure
-1.08
-18.07
-8.40
2.75

Source: iFAST Compilations, performance above 1 year is in CAGR terms and performance below 1 year is in absolute terms. Performance as on 30 August 2011

Our take on the fund

The growth in the infrastructure sector is a must for our economy to continue to grow at high current growth rate. With the 12th plan expecting about US$ 1 trillion being invested into the infrastructure space and atleast 50% of this US$ 1 trillion being invested by the private investors, there are good opportunities for patient investors in this sector.

ICICI Prudential Infrastructure fund is the best performing infrastructure fund despite the lack luster performance of this sector in the past year. However, investors can use the laggard performance to enter into this fund. Moreover, we recommend the investors to hold their investments into this fund for atleast five years to realise the growth benefits of the sector.


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 scheme information document including statement of additional information. 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. Please read our disclaimer on the website.Please read our disclaimer in the website. Risk Factors: Mutual funds, like securities investments, are subject to market risks and there is no guarantee against loss in the Scheme or that the Scheme’s objectives will be achieved. As with any investment in securities, the NAV of the Units issued under the Scheme can go up or down depending on various factors and forces affecting capital markets. Past performance of the Sponsor/the AMC/the Mutual Fund does not indicate the future performance of the Scheme. The name of the Scheme does not in any manner indicate the quality of the Scheme, its future prospects or returns. Please read the Statement of Additional Information and Scheme Information Document carefully before investing.



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