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Goverment is likely to focus on infrastructure: Rohit Singhania
Thu, Jul 03, 2014
Source : Jeni Shukla, Citrus Interactive

Rohit Singhania manages DSP BlackRock TIGER Fund.  He is also the Co-Fund Manager for DSP BlackRock Natural Resources and New Energy Fund. He is a Research Analyst focusing on sectors like Auto, Auto to, Auto Ancillaries, Metals, Infrastructure, Sugar and Hotels. Rohit joined DSP BlackRock Investment Managers in September 2005, as Portfolio Analyst for the firm's Portfolio Management Services (PMS) division. He was transferred to the Institutional Equities Team of DSP BlackRock Investment Managers in June 2009.

In an interview with Jeni Shukla he shares his views on the DSP BlackRock TIGER Fund – which is focused on infrastructure and economic reforms. Looking at this sector is relevant in the current backdrop of expectations on this front from the new government.

What is your view on the infrastructure sector?

In the next 9 to 12 months, we do not expect any big-ticket projects or reforms to be announced by the new government. A lot of things have been left incomplete in the last one and a half to two years in terms of approvals of projects. The previous government had set up the Cabinet Committee on Investments (CCI) which cleared about 85-90 projects worth thousands of crores. The current government just needs to get these executed as these are the low-hanging fruits. Many companies have a lot of money as capital work-in-progress or have taken lot of debt and are not getting any returns. The working capital cycle should pick up with the clearances and execution in place. In the banking space too, we are seeing downgrades in book value and rising NPAs every quarter. With payments coming in and execution taking place, this situation is expected to improve. After the Budget of 2015, the government might announce big projects. By that time I hope the interest rates should have also come down.

 

What is the fund management style and approach for DSPBR TIGER Fund?

In terms of the overall construct of the fund, as it’s related to the theme of infrastructure and economic reform, the starting point is a top-down approach, keeping in mind factors like the political environment, macro-economic situation, prevailing interest rates and policy expectations among others. After looking at the broad macro-environment , we analyse which sectors (roads, power etc) will do well, which sub-sectors will do well and which companies within the sector will do well. The key areas of focus are our confidence on management, strength of the balance sheet, the order book and its execution cycle.

 

Why was S&P BSE 100 chosen as the benchmark?           

At the time when the fund was launched in early 2004, there wasn’t any benchmark available which were related to the infra space. We also had the element of economic reforms. Hence the S&P BSE 100 was the best benchmark which describes around 65% of the fund. I cannot include IT, FMCG and Pharma which is about 35% of the portfolio of BSE 100.

 

What is the approach that you have towards stock selection?

We have been taking a very fundamental approach to stock selection. In January 2010, the expectation was that things are not going to be great for this sector. At that time, we just focused on balance sheet and management. We also bought sectors that would fall lesser. We were overweight on financials. We had exposure to oil and gas in June 2010- January 2011. We do not buy stocks with low quality even though they may have benefitted from market euphoria.

 

Which industries within the infrastructure space are you overweight/underweight on?             

If you look at broad sectors you have power companies, road, construction and asset owners. Compared to the benchmark, we are overweight on everything in relative terms. We expect the road and power sector to benefit in the near term. With new orders starting to come in, power equipment manufacturers will benefit. Asset owners like road owners are expected to benefit if there is buoyancy in the economy and the road traffic picks up. The same is the case with ports and other asset owners. With the current base of assets their ROEs would start to look better.

Recently, we have cut down exposure to telecom. Banks need to be the core part of the portfolio as they will be the first beneficiaries. There are some banks which are focused on overall economic growth and act as wholesale lenders. Out of our total holding in the banking space, two-third of the allocation is to such banks and they are expected to benefit significantly from infrastructure and economic reform.

 

Has the portfolio been re-structured post elections?    

Not really. By April we were quite geared up on the portfolio. Over the last 15-20 days we have added some more infrastructure stocks and cut down slightly on banks. It was not the case of cutting down banks and adding infrastructure stocks but getting new names in the infrastructure space which we thought would give more upside than some of the banking stocks.

 

What should be the time horizon and risk appetite of an investor investing in this fund?

Any thematic fund has to be a small percentage of your overall equity portfolio – I would say 15% is the advisable limit. This space needs at least 2.5-3 years to play out. Investors should bear in mind that thematic funds have an element of risk and should have a clear logic for buying a particular thematic fund. The guiding factor for this fund should be that the new government is likely to focus on this space.

What are the top reforms in the country?

Three major reforms come to mind immediately. One is on making land acquisition easy. The second would be to facilitate speedy approvals. The new government has considered merging the oil and gas and coal ministries. This should bode well for speedier approvals. These are small measures to improve coordination between various ministries which can have a good impact. The third reform would be GST, which should benefit manufacturers and corporates.

 

Click here to know Top 8 reasons to consider investing in DSP BlackRock India TIGER fund

 
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