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DSP BlackRock TIGER Fund: Profiting from infrastructure

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The Narendra Modi Government in India has, since its inception, made infrastructure, the most important priority area, as far as fiscal policy is concerned. Budgetary allocations to infrastructure are on an increasing trend since the current Government took office in 2014. The 2017 Budget presented by Finance Minister, Arun Jaitley has seen an even bigger push to the infrastructure sector. The Government will spend around Rs 4 Trillion to upgrade infrastructure in our country, including the largest ever allocation to Railways (Rs 1.3 Trillion).

The infrastructure theme has given excellent returns to investors. It has been nearly three years since the BJP led NDA Government took office in Delhi; in the past 3 years DSP BlackRock T.I.G.E.R Fund has given 26% compounded annual returns to investors. In other words, if you had invested, Rs 1 Lakh in DSP BlackRock T.I.G.E.R Fund 3 years back, your investment would have doubled in value by now. In the last one year itself, DSP BlackRock T.I.G.E.R Fund has given more than 33% returns to investors. If you look returns by different mutual fund product categories, infrastructure funds are among the top 3 highest return mutual fund categories in the last 1 year.

Experienced investors among Advisorkhoj readers may recall that, infrastructure was a favourite theme of investors 10 years back at the height of the bull market in 2007 and yet the performance of the sector over the next few years (after 2007) was pretty bad; many investors lost money in infrastructure funds. Even after the market recovered from the severe bear market in 2008, infrastructure was a beaten down sector in the last 3 years of the UPA regime. However, this sector has looked up after the regime change and many experts believe that this sector is going through a transformational shift. Many investment advisors and financial planners are advisingtheir clients to invest a portion of their portfolio in infrastructure funds with a five to seven year investment horizon.

Fund Overview and History

DSP BlackRock T.I.G.E.R Fund was one of the earliest product offerings (launched in 2004) in the thematic infrastructure category. It was quite successful in the initial years but suffered terribly in 2008 and 2011 like any other infrastructure funds. The fund underperformed in 2013, but in 2014 and 2015 the fund outperformed versus the category, and on YTD basis this year, has continued to outperform. The fund has Rs 1,300 Crores of Assets under Management. The expense ratio of the fund is 2.4%. In the past the fund had been helmed by the some of the most veteran fund managers of DSP BlackRock Mutual Fund. The current fund manager is Rohit Singhania.

The fund seeks to generate capital appreciation by investing in equity and equity related securities of corporates that could benefit from ongoing structural changes and economic reforms in the country. The portfolio is well diversified across sectors, market capitalisation and between private & PSU companies and will get benefit from increased government spending on infrastructure and increased private participation and revival in the corporate capex cycle. The fund has given nearly 18% compounded annual returns since inception.

Fund Performance

The chart below shows the NAV growth of the fund since inception.


Mutual Funds - The NAV growth of the fund since inception

Source: Advisorkhoj Research


The chart below shows the annual returns of the fund over the last 5 years.


Mutual Funds - The annual returns of the fund over the last 5 years

Source: Advisorkhoj Research


The 3 year rolling returns chart of DSP BlackRock T.I.G.E.R Fund shows that it has outperformed the category over the last 5 years on a consistent basis.


Mutual Funds - 3 year rolling returns chart of DSP BlackRock T.I.G.E.R Fund

Source: Advisorkhoj Research


Fund Portfolio

In terms of sector allocations, Banking and Construction comprise the highest portfolio weights at around 25% each. Some investors may think why is the infrastructure fund investing in banks? You should understand that, unlike sectors like banking, technology, pharmaceuticals, FMCG etc, infrastructure is a theme, covering a number of sectors like railways, highways, ports, cement, construction, power etc. Banking is an important sector for infrastructure because most infrastructure projects are financed through bank loans. Apart from banking, cement and construction, power, petroleum and capital goods also form the major part of DSP BlackRock T.I.G.E.R Fund portfolio. Construction major Larsen and Toubro, the largest PSU bank, State Bank of India, private sector banks like HDFC Bank and ICICI Bank are the 4 largest stock-holdings of the fund. Among other major stock-holding are, Techno-Electric, Ashoka Buildcon, Ultratech Cement, Vedanta and Bharat Petroleum.

Infrastructure Sector Reforms in India and Sector Outlook

The Government is implementing a number of important reforms in the infrastructure sector. Flagship initiatives of the Government like Make in India, Ease of doing Business etc, will provide a fillip to both public sector and private sector infrastructure spending. The Goods and Services Tax (GST) to be implemented in the new fiscal year will provide a boost to the transportation sector, a key component to the infrastructure theme. A benign interest rate regime plays an important role in incentivising private sector capex spending. While the Reserve Bank of India is committed to an interest rate regime conducive for stimulating growth, the demonetization initiative of the Prime Minister has already had an impact on interest rates in the economy. Financial experts believe that India is the bright spot in the global economy and will shine even brighter within the future; within India, infrastructure sector is likely to see growth and provide excellent returns to investors over a sufficiently long investment horizon.

SIP in Infrastructure Funds can give excellent returns

Infrastructure stocks tend to be volatile and therefore, SIP is a great mode of investing in infrastructure funds, so that investors can take advantage of volatility through rupee cost averaging and get excellent returns over a long investment horizon. The chart below shows the growth of Rs 5,000 SIP in DSP BlackRock T.I.G.E.R Fund (Growth Option) over the last 5 years.


Mutual Funds - The growth of Rs 5,000 SIP in DSP BlackRock T.I.G.E.R Fund (Growth Option) over the last 5 years

Source: Advisorkhoj Research


You can see in the chart above that, with Rs 5000 monthly SIP in the fund, you could have accumulated more than Rs 4.6 Lakhs with an investment of just of Rs 3 Lakhs.

Conclusion

Investors need to have a sufficiently long time horizon if they want to invest in DSP BlackRock T.I.G.E.R Fund. Investors with high risk appetite and long term time horizon can consider buying the scheme through the systematic investment plan (SIP) or lump sum route. Investors should consult with their financial advisers if DSP BlackRock T.I.G.E.R Fund is suitable for their individual risk profiles and time horizons.

Mutual Fund Investments are subject to market risk, read all scheme related documents carefully.

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Dwaipayan Bose

An alumnus of IIM Ahmedabad, Dwaipayan is a Finance and Consulting professional, with 13 years of management experience, mostly in MNCs like American Express and Ameriprise Financial, both in India and the US. In his last role, he was the Chief Financial Officer of American Express Global Business Services in India. His key interests are building best in class organizations, corporate governance and talent development

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