20 May 2014 Time to Play on Infra
What has changed? New business-friendly majority Government in power Improvement in policy environment Infrastructure thrust by new Govt. Capex cycle is bottoming out Capital Expenditure (Capex) Funds tied up by corporate showing improvement Greenshoots [new projects acceptance] seen since last 2 months Corporate Earnings cycle has bottomed out and is expected to recover with high probability of ~15-20% growth over next 3 years.
Macro Economic Indicators Improved Macro-economic scenario Economic growth close to bottoming out with GDP rising 4.7% Q-o-Q. Current Account Deficit estimated to be down to 1.9% of GDP in FY14 from 4.8% in FY2014. Fiscal Deficit estimated to be with in budgeted 4.8% of GDP. Stable Currency Moderating Inflation Inflation WPI: Decelerated to 5.2% in Apr 14 from a high of 7.52% in Nov 13 Inflation CPI: 8.59% for the month of Apr 14 from the peak of 10.70% in Mar 13.
Case for Investing in Infra Fund Why Infra Sector underperformed over the last 3-4 yrs Cyclical Downturn Policy Paralysis Prolonged period of high interest rates Why Infra sector will outperform now? Capex cycle bottoming out cyclical uptick Greenshoots visible Majority Govt Better Policy Environment Expected downward movement in interest rates, may be in 9 months to 1 year Reasonable Valuations
Cyclicals to Outperform Defensives outperformed in last 5 years Index Name Latest Levels^ CAGR % 3 Yrs 5 Yrs 7 Yrs Defensive Sectors S&P BSE FMCG 6,685 20.76 25.89 19.91 S&P BSE Health Care 9,945 17.86 24.92 15.00 S&P BSE IT 8,214 10.80 23.53 7.58 Now Cyclicals to Outperform Index Name Latest Levels^ Absolute Returns % 1 Mth 3 Mths 6 Mths 1 Yr Cyclical Sectors S&P BSE Power Index 2,148 21.56 39.53 33.69 16.48 S&PBSE Capital Goods 14,606 20.97 50.26 57.32 40.13 CNX Bank 15,222 19.04 43.48 36.06 14.31 CNX PSU Bank 3,706 29.07 74.18 46.18 6.91 CNXAUTO 6,251 5.68 18.50 19.06 31.30 CNXMETAL 2,960 14.99 32.06 27.90 32.66 ^ As on 19 May, 2014.
Valuation at significant ifi discount to peak levels l Cyc clical De efensive Price to Book Value (P/B) Price to Earnings (P/E) Indices Peak Current^ Disc. from Disc. from Peak Current^ Peak Peak BSE Capital Goods 14.76 3.33 77% 53.63 40.26 25% BSE India Power 6.95 1.67 76% 46.04 17.27 62% Bank Nifty 3.86 2.13 45% 20.59 15.58 24% BSE Metal 467 4.67 131 1.31 72% 29.00 13.62 53% BSE Auto 5.95 4.16 30% 62.96 15.50 75% CNX IT 10.97 3.89 65% 33.41 15.31 54% CNX Pharma 5.82 4.85 17% 49.15 31.96 35% CNX FMCG 11.16 10.89 2% 37.13 33.82 9% Nifty 5.78 2.76 52% 24.80 17.28 30% Sensex 6.10 2.88 53% 25.32 18.08 29% ^As on 19 May 2014 Source: Bloomberg On P/B basis s Capital Goods, Power, Metal and IT sectors s are deep in discount to their respective all time high valuations. FMCG & Pharma sectors are relatively close to their peak valuations but still available at discount to peak. Auto sector is trading well above its 10 yr average but 30% lower than its all-time-high valuations.
Why invest at 24.4k 4k Sensex? Reasonable Valuation Sensex Forward P/E @ 15.70x vs 10 year avg P/E of 17.70x. Improved Sentiment, an optimism in the market due to new government, improved macro-economic scenarios and Market Cap to GDP of ~70% is reasonable pricing and portends a favourable risk reward equation. likely thrust on infrastructure sector makes this theme a case for investing even at these elevated market levels. We are recommending those sectors of the markets which still hold lot of steam and may outperform the broader market substantially.
Investment t Strategy t SIP/STP We believe Infrastructure Sector can go up 20 25% p.a. over the next 3 years, may be with some volatility in between. Infrastructure thrust by new government will be visible over a period of time, hence we have time in hand to accumulate systematically over a period of time. At this juncture we recommend following 36 months strategy i. Lumpsum of 40% at this level in Infra Fund ii. Start a SIP/ STP^ of rest 60% in Infra Fund over 24 months. iii. Then hold for the next 12 months. This strategy provides the scope for accumulation over the next 24 months and then staying put for the next 12 months. Those who can do lumpsum investment, go for STP mode wherein initial investment can be made in Birla SL Cash Manager Fund A liquid fund offering 9.05% return in 1 year as on 19 May 2014 MUCH BETTER THAN BANK SAVING A/C) Then from Liquid Fund investment will happen in Infra Fund on monthly basis. ^ Monthly Systematic Investment Plan / Systematic Transfer Plan
Illustration of Rs. 10 lakh To see how this investment strategy pans out, consider below mentioned illustration of Rs. 10 lakh total investment reaping 20% p.a. Lumpsum of 40% i.e. Rs. 400,000 in Infra Fund Start an SIP/ STP of 60% i.e. [6,00,000/24] Rs. 25,000 per month for 24 months Hold for next 12 months once SIP/STP is over. We expect 20% p.a return from the Infra Fund from this point onward. Investment (Rs.) Rs. 10,00,000 00 000 Assumed Return 20% p.a. Lumpsum (of 40%) Rs. 400,000 SIP (of 60% over 24 months)^ Rs. 25,000 per month Tenure of SIP 24 months Holding Period after 24 months 12 months End Value [at the end of 36 months] Rs. 16,04,772 ^ 60% i.e. Rs. 6,00,000 invested via SIP/STP over 24 months
Infra Funds Analysis There are 23 infrastructure funds, out of which only 8 funds has more than 100 crores net assets. Out of these 8 funds, in 4 funds the Fund Manager has been changed with in the last 3 yrs. Performance of the rest of the 4 funds is given below. Fund Rating Net Assets Absolute Return % CAGR % Launch (Cr) 1 Month 3 Month 1 Year 3 Year 5 Year UTI Infrastructure Fund * Apr 04 1227 17.83 44.77 22.22 5.55 4.56 DSP BlackRock T.I.G.E.R. TIGER Fund *** May 04 994 19.76 44.07 26.2525 937 9.37 945 9.45 HDFC Infrastructure Fund **** Feb 08 521 19.45 52.52 30.17 6.26 11.3 Birla Sun Life Infrastructure Fund ***** Feb 06 290 17.87 42.04 35.01 10.08 10.85 On risk-return performance measures front Birla SL Infrastructure Fund stands out among the rest of the funds. It has lowest Std. Dev. depicting relatively lower volatility Highest Sharpe ratio and Sortino ratio which reflects better risk return performance and downside risk protection. Highest Alpha demonstrating relatively higher outperformance to the benchmark.
Our Winner: Birla SL Infrastructure t Fund Fund Objective Net Assets Trend An open end growth scheme with the objective to providing for medium to Month Rs. Crs. long term capital appreciation by investing predominantly in a diversified Apr, 2014 342 portfolio of equity and equity related securities of companies that are Mar, 2014 329 participating in the growth and development of Infrastructure in India. Feb, 2014 289 Fund Highlights g Fund Statistics Net Assets as on (30 Apr 14 ) [Rs. Crs.] 342 Total Stocks 55 NAV as on (19 Growth (G) 20.71 Total Sectors 29 May 2014 ) Dividend (D) 14.27 P/E Ratio 22.52 52 Week High NAV (G){19 May 2014} 20.71 P/B Ratio 249 2.49 52 Week Low NAV (G) {28 Aug 2013} 11.68 Min Invest (in Rs.) Lumpsum 5,000 Holding Concentration (%) SIP 1,000 Top 5 Stocks 27.12% Type Open ended Top 10 Stocks 40.68% Category Equity Sector Funds Top 5 Sectors 44.31% Launch Date 17 Mar 06 Fund Manager Mahesh Patil Top 10 Sectors 64.16% Benchmark CNX Nifty Index Max. Exit Load (%) 1
Returns & Portfolio Allocation of Birla Infra Return Performance (%) Period Fund Benchmark Nifty 3 Months 42.04 18.05 6 Months 42.53 17.09 1 Year 35.01 17.39 2 Years 25.89 21.83 3 Years 10.0808 10.1919 5 Years 10.85 10.95 Since Inc. 9.31 10.40 Top 10 Stocks (%) Top 10 Sectors (%) Name (%) ICICI Bank Ltd. 8.35 Bank Private Larsen & Toubro Ltd. 6.43 Engineering Construction Cummins India Ltd. 5.60 Diesel Engines Wb Wabco India Ltd. 386 3.86 Transmission Towers / Bharti Airtel Ltd. 2.87 Auto Ancillary KEC International Ltd. 2.86 Bank Public IndusInd Bank Ltd. 2.79 Telecommunication Reliance Industries Ltd. 2.73 Oil Exploration NMDC Ltd. 2.63 Refineries PTC India Ltd. 2.54 Automobiles Trucks/Lcv Total 40.68 63 Market Cap Allocation % 34.95 Returns for less than 1 year are absolute and over 1 year are compounded annualized as on 19 May 2014. 2.04 Large Mid Small 5.60 5.15 4.76 4.23 4.05 395 3.95 3.93 3.68 10.77 18.03
SIP Returns of Birla Infra Systematic Investment Plan (SIP) Returns as on 19 May 2014 SIP of Rs. 10,000 p.m. Period 1 year 3 years 5 years Since Inc SIP Start Date 03 Jun 13 01 Jun 11 01 Jun 09 17 Apr 06 Total Amt Invested 1.20 lacs 3.60 lacs 6.00 lacs 9.70 lacs Present Value 1.73 lacs 5.17 lacs 8.22 lacs 15.06 lacs Return (XIRR) 99.37% 25.54% 54% 12.72% 10.46% Present Value if invested in Benchmark 1.43 lacs 4.67 lacs 8.01 lacs 15.14 lacs Return (XIRR) from Benchmark 40.42% 18.06% 11.64% 10.59% If you had invested Rs. 10,000 per month since last 5 yrs in Birla Sun Life Infrastructure Fund, your investment of Rs.6.00 lacs would be worth Rs. 8.22 lacs against Benchmark (CNX Nifty Index) which would be worth Rs.8.01 lacs Best / Worst Returns Since Inception Best Returns (%) Worst Returns (%) Period Fund Benchmark Period Fund Benchmark Monthly 29/04/09 to 01/06/09 45.44 30.4 24/09/08 to 24/10/08 34.83 37.9 Quarterly 05/03/09 to 05/06/09 98.01 78.01 02/09/08 to 02/12/08 41.73 40.99 Yearly 09/03/09 to 11/03/10 136.04 99.5 20/11/07 to 20/11/08 62.37 55.83
Risk Oil Prices: India imports ~85% of its oil requirement yearly. Twin Deficits: Fiscal Deficit and Current Account Deficit (CAD) though there has been some improvement recently Rupee Depreciation Global Macro
Product Colour Code Colour Code: Brown This product is suitable for investors who are seeking: Capital Appreciation over long term Investment in a diversified portfolio predominantly equity and equity related instruments of infrastructure companies (Blue) Investors (Yellow) Investors (Brown) Investors understand that their understand that their understand that their principal at low risk principal at medium risk principal at high risk
Kiran Nate Analyst Mutual Funds Fortune Group Kalpataru Heritage, 4th Floor, 127 M G Road, Fort, Mumbai, 400 001. Tel: +91 22-4051 2546 (Dir), Fax: 022-2263 3285 (E) kiran.nate@ffsil.com (W) www.fortune.co.in Disclaimer Mutual funds, like securities investments, are subject to market risks and there is no guarantee against loss in the schemes or that the schemes objectives will be achieved. As with any investment in securities, the NAV of the units issued under the schemes 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 schemes. Please read the scheme information documents of the scheme and the statement of additional information before investing.