ICICI Prudential Infrastructure Fund - Attractive thematic fund

Lack of infrastructure is one of the major constraints on India’s ability to achieve a 9-10% GDP growth. India needs to invest substantially in infrastructure to achieve the desired results. The 11th Five Year Plan envisaged a total investment of Rs 2056150 cr (USD 514 billion) as compared to 887794 cr (USD 222 billion) in the previous plan, a jump of more than 130%. It is estimated that that planned infrastructure spend of the 12th Five Year Plan will be double of what it was in the 11th Five Year Plan. Hence, increased focus and investment from government could bring future outperformance for the sector.

To exploit the opportunities available in the infrastructure space and participate in the country’s growth story, investors can look at investing in one of the oldest and most consistently performing infrastructure fund - the ICICI Prudential Infrastructure Fund. ICICI Prudential Infrastructure Fund focuses on core infrastructure and on the sectors that directly feed off the growth in the core sector. It uses a mix of top-down macro research to identify key sectors and bottom-up micro research for stock picking. The fund was launched in August 2005, and has generated a CAGR of 19.70% since its inception.

The fund is managed in a conservative manner, and has a predominant equity exposure of around 83% in large cap infrastructure sector stocks out of the total equity exposure. The fund is well-diversified, with 49 stocks in its portfolio. The top 5 sectors and top 10 holdings account for 59% and 46% of its net assets respectively. It is overweight on Oil, Power, Industrial Capital Goods and Telecom and underweight on Auto, Petroleum Products, Construction projects and Finance, as compared to the S&P CNX Nifty. It was earlier managed by S. Naren. Following his instatement as the CIO–Equity of the fund house, it is now managed by Prashant Kothari.

In terms of performance, the last few years have been propelled by the consumption cycle — large part of the market rally has been led by consumption driven sectors. Hence, infrastructure funds have underperformed the broader market in the last 2-3 years. However, in the long term, i.e. 5 years, the fund has significantly outperformed the broader market, benchmark as well as its peers and has generated a CAGR of 18.60%.

The infrastructure theme has not participated in the market rally, and is currently trading cheaper as compared to its historic average and relative to the broader index. The ICICI Prudential Infrastructure Fund presents an attractive investment opportunity, given the inflexion point of policy imperative, govt. outlay increase, public- private partnerships, foreign investor interest and economic reforms expected to provide an overall boost to the sector.

As we see it, there is a good infrastructure story which could unfold in the next 3-4 years. We recommend staggering your investment over the next six months in infrastructure funds, with an investment horizon of over three years. Keep in mind, however, that it is not advisable to allocate more than 10% of your portfolio in funds of a particular theme.