This vintage infrastructure fund looks to gain from the renewed focus on the sector

Investors in DSP’s ‘The Infrastructure Growth and Economic Reforms (TIGER)’ fund have had a roller-coaster ride, with long periods of weak returns. A thematic fund, its performance hinges on the pace of development in infrastructure and economic reforms in the country.

Fund manager Rohit Singhania, who has had a long innings of nearly two decades at the fund house, is optimistic that the economy is now poised to gain from reforms done in the recent past. He speaks about new-age businesses, along with sectors such as real estate, road construction and defence that are supported by reforms in the recent past. In a conversation with Vatsala Kamat, he explains why there is scope for active fund management, while pointing to near-term risks to equity markets.

Q: The TIGER fund is among your oldest schemes, but its performance has been a mixed bag. How is it positioned to benefit from the recent set of reforms?

A: After the Global Financial Crisis in 2008-09, our domestic economy bounced back. But for a few years from 2012, there was a void in government policy towards focused infrastructure growth. So, while companies in the infrastructure segment were striving to do well, a lot of large projects were stuck due to policy issues or delays such as environmental clearances.

Today, the economy is better placed. There have been reforms such as Goods and Services Tax, Real Estate (Regulation and Development) Act, Production Linked Incentives and Labour Reforms, so I see a lot of positivity ahead. We are optimistic on defence and road construction companies. We are also positive on real estate. Covid-19 has pushed up home sales too. We also invest in related sectors such as consumer durables, piping, commodities such as metals and cement that are proxies to realty.
Infrastructure in the current context also includes a host of new age businesses, which the fund will look to invest in. For instance, data centre development is set to attract a lot of global companies into India. Many related industries such as building and construction, air conditioning, cabling and power back-up, are also likely to see a boost.

So, infrastructure as a theme includes sectors that cater to large projects and diversified ancillary industries.

Q: The auto and banking sectors have seen huge reforms in the last couple of years. Why have they not found a place in your portfolio?

A: We wanted to ensure our investment philosophy and portfolio for the TIGER fund is true to label. We had banking in our portfolio (~30 percent weightage) till December 2020. We found that banking is a significant part of the portfolios of any diversified fund (including our own fund house) and benchmark indices. But these other funds have much lower exposure to infrastructure, engineering and manufacturing. So, we took a call not to include banks and NBFCs in our portfolio, and have more infrastructure-oriented names.

But we are okay to invest in financial service providers that do not use their balance sheets for lending such as brokerages, insurance and so on. As for autos, we may include companies that are linked to infrastructure development such as commercial vehicle makers, but not passenger vehicle or a two-wheeler companies, which do not directly relate to infrastructure growth.

Q: Do you think the Initial Public Offering (IPO) boom will impact fund flows into equity mutual funds?

A: There is no doubt that a lot of capital is being sucked into IPOs right now. However, given the small size of most issues and high levels of oversubscription, investors only get a small exposure in a handful of companies through these IPOs. So, we think this is unlikely to structurally impact equity mutual fund inflows. The latest data on mutual fund flows (including SIPs) and even bank deposits is encouraging.

Q: With equity markets and benchmarks on a roll, is there scope for active fund management?

A: The last few years’ rally was polarized (i.e. concentrated in a few stocks) and so index funds did well. As the economic growth becomes more broad-based – something that we have not really seen in the last 7-8 years – there will be a lot of scope for active fund management.

As for our core investment philosophy, the key is to understand the business. About 70 per cent of the DSP TIGER Fund’s portfolio has companies with valuations that provide a margin of safety. This means, we look at a stock’s past earnings and valuations, and also in relation to peers. Additionally, we look at businesses that are close to cyclical lows and available at distressed valuations or those that have turnaround narratives.

Q: Will the rally in the equity markets continue?

A: I would advise investors not to go by what happened in the last one year. If you are investing in equity markets, be ready for a time correction. While I do not see any major reason to be overcautious, predicting markets in the short term is meaningless. But given such quick sharp returns in the recent period, the market may move up slower in the near future. So, it would be best to stay invested for a longer period of time.