For last two consecutive years, economic growth in India has been below 5%. Global slowdown, anemic manufacturing growth and ordinary performance of agriculture have been some of the main reasons for slacking growth. But above all, extremely slow development on infrastructure front caused Indian economy to advance at snail's pace. Lack of reforms, bureaucracies, red tape, and weak business sentiment negatively affected the infrastructural development in the country. As a result, performance of industries forming a part of infrastructure theme was affected. The investors betting on these sectors were disappointed too.

Now that NDA has come to power, expectations have heightened. It is expected that, Prime Minister Mr Narendra Modi himself will set the ball rolling by putting pressure on the cabinet to boost infrastructure growth. On this hope, investors are re-looking at infra theme. Infra stocks have been buzzing these days and thus infrastructure funds have also generated impressive returns.
 

It's a high tide again for infra theme

Data as on June 03, 2014
(Source: ACE MF, PersonalFN Research)  

But before, you get swayed away by the upbeat sentiment, it is important for you to assess the situation carefully. You need to know challenges before NDA Government. It would remain crucial to see how Government responds in challenging times.

Why infrastructure growth slowed?

Under UPA II regime infrastructure growth took a major setback mainly due to:
 

• Policy paralysis
• Delays in land acquisition
• Environmental clearances
• And constraints of funds (especially in railway projects)
   

And now the Challenges before NDA Government are:
 

• Cost overruns: As revealed by Associated Chambers of Commerce and Industry of India (ASSOCHAM) execution related delays are causing costs to overrun by above Rs 1 lakh crore. Railways, Power, Coal and Petroleum are the worst hit sectors where a cost overrun has been a cause of a concern.
   
• Talent shortage: There is an acute shortage of skilled project managers and blue collar workers. Going forward, Indian may need lakhs of projects managers, civil engineers and skilled and semi-skilled blue collar workers.
   
• Land Acquisition: It is said that, land acquisition process would be time-consuming and costly under new Land Acquisition Act. Acquiring big chunk of large land bank for big infrastructure projects would be a tough task. Further constrained fiscal situation may increase the worries of NDA Government
   

The approach of NDA Government to infrastructure development...
Prime Minister Mr Narendra Modi has stated that focus of his Government would remain on rapid development in highways, railways, ports and power. It is expected that, NDA Government would revive the National Highway Development Programme. The Government is likely to introduce time bound plan for implementation of infra projects. Minister of State (Independent) for Environment, Forest and Climate Change, has already promised faster clearances to infra project without compromising on environmental issues.

Mr. Modi has already abolished the system of Empowered Groups of Ministers (EGoMs) and Groups of Ministers (GoMs) to speed up the process of decision making. NDA wants to develop at least 100 smart cities across the country.

Should investors bet on theme infra?

PersonalFN believes that, although infrastructural growth may be revived with NDA coming to power, it still remains a tough job. Apart from above mentioned factors, factors such as inflation, monetary policies, movement of interest rates would also determine the pace of infrastructural development in the country.

PersonalFN has always taken a firm stand that sector and thematic funds are better avoided. They expose you to higher risk and always put on you onus of timing that market. PersonalFN believes investing in opportunities oriented funds, may help investors generate high returns at lower risk as compared to those generated by sector and thematic funds. The biggest advantage of investing in opportunities oriented fund is fund manager identifies attractive sectors and lets your investments benefit from sector specific opportunities. PersonalFN is of the view that, instead of investing in infrastructure funds, you may be better off investing in opportunities funds which may help you generate wealth. While you select a fund, you should choose one that has a proven track record of generating consistent returns across time frames and market cycles. PersonalFN writes on such funds in its FundSelect research reports.

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