After having made losses in 2015, infrastructure funds made a comeback of sorts this year. Funds in this category have returned between 2 per cent and 18 per cent over the last one-year period ending October 2016.
A good show by cement and power stocks boosted the returns of top-performing funds. An expected jump in cement demand on the back of higher spending on infrastructure has buoyed cement stocks.
In the power sector, safe bets such as NTPC and Power Grid Corporation of India, which earn assured regulated returns, worked well.
Most infrastructure funds do not limit their portfolios to pure infrastructure-led stocks; they invest a notable portion in banking stocks, too, which are seen as a proxy for growth in the economy. A good run in banking stocks, too, worked in favour of infrastructure funds.
L&T Infrastructure Fund, the top performer, returned close to 18 per cent over the past year. A sharp rise in the price of Shree Cement and Grasim Industries, which account for nearly 11 per cent of the fund’s corpus, bumped up returns.
A rally in Hindalco Industries too contributed to the fund’s performance as did fresh exposure to Engineers India and AIA Engineering.
For Franklin Build India Fund, the second-best performer (15 per cent return), banking stocks, such as State Bank of India, HDFC Bank and Axis Bank did the trick. These stocks account for nearly a quarter of the fund’s corpus. Smart gains by the fund’s new picks - Power Grid Corporation of India and Indian Oil Corporation, too, worked in its favour.
At 14 per cent one-year return, SBI Infrastructure Fund finished a close third. Gains by the fund’s top pick, NTPC, acted as a big booster. Handsome returns by stocks, such as Sagar Cements, V-Guard Industries and Elgi Equipments too helped.
The three account for close to 15 per cent of the fund’s corpus. Taking exposure to India Cements, ONGC and Indraprastha Gas, too, played out well.
At the bottomAmong the laggards were ICICI Prudential Infrastructure Fund, Invesco India Infrastructure Fund and HSBC Infrastructure Equity Fund, which returned a meagre 2-4 per cent over the past year.
The fall in the price of certain stocks despite the funds’ reduced holdings in them hurt returns. Stocks such as Larsen & Toubro, Sadbhav Engineering, ICICI Bank and Gateway Distriparks dented the performance of ICICI Prudential Infrastructure Fund, while Idea Cellular and Cummins chipped away at the returns of Invesco India Infrastructure Fund.
Gujarat Pipavav Port and Gateway Distriparks were the spoilers for HSBC Infrastructure Equity Fund.
Besides, what also dampened the funds’ returns were exits from stocks that went on to generate healthy returns. Exiting from stocks such as Birla Corporation, Crompton Greaves and State Bank of India did not work for ICICI Prudential Infrastructure Fund. For Invesco India Infrastructure Fund; Ambuja Cements, Grasim Industries and Petronet LNG and for HSBC Infrastructure Equity Fund; Apollo Tyres, turned out to be missed opportunities.
Invesco India Infrastructure Fund’s returns were also hurt by fresh exposure to laggards, such as ISGEC Heavy Engineering, Ratnamani Metals & Tubes and JSW Energy.