Infrastructure funds are topping the performance charts after a long gap of almost six years. However, several investment experts are not really impressed. They are asking their clients to take profits and get out of these funds.
"Sell your investments in these funds and invest the proceeds in diversified equity funds. Infrastructure companies are not posting good numbers, and the current rally is based on tall expectations from these companies after a stable central government comes to power," says Uday Dhoot, deputy CEO of International Money Matters, a Bangalore-based wealth management company.
Naturally, if the expectations of a stable government at the Centre do not materialise, these stocks are going to tank again.
Despite the buzz in the recent past about the imminent revival of fortunes, many investors in infrastructure stocks have stopped tracking their performance, because of the sustained underperformance for a long period.
They would be pleasantly surprised, if they checked their performance in the last six months.
According to Value Research, a mutual fund tracking entity, the infrastructure funds category delivered 27.85 per cent returns in the last six months ended April 2. Compare this to their abysmal performance of an annualised loss of 1.83 per cent in the last three years, and you would get the complete picture.
CLOUDS HAVEN'T CLEARED YET
"Use this pre-election rally to book profits in these funds as infrastructure companies will take time to deliver even if there is a stable government in place, post-elections," says Ashish Shanker, head-investment advisory, Motilal OswalBSE 0.87 % Private Wealth Management. He is upbeat on cyclical sectors, which also include infrastructure in the long term, but he is expecting the space to pause in the short term.
Most experts believe that stock prices may not continue their upward journey with the same momentum, as there are no numbers to support the high valuations.
"In the last one year, barring stray incidences , there are no positive surprises in the infrastructure space and most companies have been reporting numbers in line with or below analyst expectations," says Kunj Bansal, chief investment officer, CentrumBSE 0.00 % India. Since the scope for further upside in these stocks looks limited, investment experts are asking investors to take some money home.
Another familiar refrain is that even if a stable government materialises at the Centre, it need not change the fortunes of the sector immediately. "Stable government needs some time to roll out reforms across sectors; which will boost the confidence of companies to initiate capital expenditure. Increase in government expenditure will also come with some lag," says Kunj Bansal.
Most projects in the infrastructure space are of high gestation in nature, and the payoffs from these projects take time for both project owners as well as for suppliers.
Put simply, all the positives expected from the new stable government will take around two years (that is, if the government really gets its priorities right) to translate into increase in profits of the companies in this sector. "If your equity allocation is in line with your risk profiling, you can consider moving from infrastructure funds to diversified equity funds," says Ashish Shanker. He recommends Franklin India Flexicap Fund, Reliance Equity Opportunities Fund, ICICI Prudential Discovery Fund.
If you have already moved far ahead of your prescribed asset allocation, it makes sense to rebalance your asset allocation by selling investments in infrastructure funds.
"Rarely, retail investors can time their entry and exit in thematic funds. The current rally in infrastructure theme can be used to exit profitably," says Uday Dhoot. He recommends investing in diversified funds, where the fund manager may take some exposure to cyclical sectors including infrastructure stocks, if the fund manager expects some upside.
This article taken from Economic Times : http://economictimes.indiatimes.com...fy-portfolio-experts/articleshow/33382777.cms
"Sell your investments in these funds and invest the proceeds in diversified equity funds. Infrastructure companies are not posting good numbers, and the current rally is based on tall expectations from these companies after a stable central government comes to power," says Uday Dhoot, deputy CEO of International Money Matters, a Bangalore-based wealth management company.
Naturally, if the expectations of a stable government at the Centre do not materialise, these stocks are going to tank again.
Despite the buzz in the recent past about the imminent revival of fortunes, many investors in infrastructure stocks have stopped tracking their performance, because of the sustained underperformance for a long period.
They would be pleasantly surprised, if they checked their performance in the last six months.
According to Value Research, a mutual fund tracking entity, the infrastructure funds category delivered 27.85 per cent returns in the last six months ended April 2. Compare this to their abysmal performance of an annualised loss of 1.83 per cent in the last three years, and you would get the complete picture.
CLOUDS HAVEN'T CLEARED YET
"Use this pre-election rally to book profits in these funds as infrastructure companies will take time to deliver even if there is a stable government in place, post-elections," says Ashish Shanker, head-investment advisory, Motilal OswalBSE 0.87 % Private Wealth Management. He is upbeat on cyclical sectors, which also include infrastructure in the long term, but he is expecting the space to pause in the short term.
Most experts believe that stock prices may not continue their upward journey with the same momentum, as there are no numbers to support the high valuations.
"In the last one year, barring stray incidences , there are no positive surprises in the infrastructure space and most companies have been reporting numbers in line with or below analyst expectations," says Kunj Bansal, chief investment officer, CentrumBSE 0.00 % India. Since the scope for further upside in these stocks looks limited, investment experts are asking investors to take some money home.
Another familiar refrain is that even if a stable government materialises at the Centre, it need not change the fortunes of the sector immediately. "Stable government needs some time to roll out reforms across sectors; which will boost the confidence of companies to initiate capital expenditure. Increase in government expenditure will also come with some lag," says Kunj Bansal.
Most projects in the infrastructure space are of high gestation in nature, and the payoffs from these projects take time for both project owners as well as for suppliers.
Put simply, all the positives expected from the new stable government will take around two years (that is, if the government really gets its priorities right) to translate into increase in profits of the companies in this sector. "If your equity allocation is in line with your risk profiling, you can consider moving from infrastructure funds to diversified equity funds," says Ashish Shanker. He recommends Franklin India Flexicap Fund, Reliance Equity Opportunities Fund, ICICI Prudential Discovery Fund.
If you have already moved far ahead of your prescribed asset allocation, it makes sense to rebalance your asset allocation by selling investments in infrastructure funds.
"Rarely, retail investors can time their entry and exit in thematic funds. The current rally in infrastructure theme can be used to exit profitably," says Uday Dhoot. He recommends investing in diversified funds, where the fund manager may take some exposure to cyclical sectors including infrastructure stocks, if the fund manager expects some upside.
This article taken from Economic Times : http://economictimes.indiatimes.com...fy-portfolio-experts/articleshow/33382777.cms