Infrastructure blues

I invested Rs 50,000 in DSPBR T.I.G.E.R on January 23, 2008. When I look at the value of my investment now (June 21, 2010), it shows a loss of around Rs 5,500, despite the Sensex going up during this period. Should I sell or hold?
- Ravindra Varma

We have been flooded with mails regarding infrastructure funds. During 2006-07, these funds rocked and investors were barely able to contain their excitement. But during the downturn they went downhill. When the recovery took place last year, the infrastructure category failed to pick up momentum. The result: disillusioned investors who never understood the risk of investing in a thematic offering.

Infrastructure funds have fallen from grace because they have not been able to race ahead in the bull rally that began in March 2009. Almost all infrastructure funds had a high exposure to Energy in 2009. In terms of performance, BSE Oil & Gas (73%) and BSE Power (74%) could not hold a candle to BSE Metals (234%), BSE Auto (204%) and BSE IT (133%), the latter two being sectors an infrastructure fund cannot touch. When investing in a thematic fund, investors must ride the tide. And they were certainly not complaining when infrastructure funds delivered handsomely in the earlier bull run. Between June 15, 2006 and January 8, 2008, the average absolute return from this category was 89 per cent, as against 69 per cent from the equity diversified category.

Last year, lack of funding hit infrastructure companies. Take, for instance, companies like GVR Infrastructure. To build airports requires tremendous amounts of funding and they have to tap the overseas market. After the 2008 crisis, that proved to be a problem. The lack of capital resulted in delays and projects getting stalled, causing stock prices to plunge. Besides, infrastructure companies have unique problems like huge manpower requirements, and issues related to land acquisition, state jurisdiction, government policy, etc. Investors must understand the risks associated with them. However, the country needs infrastructure. If you are willing to stay invested for the long haul, the sector holds promise. As for your case, you invested in the fund at one go, and not via a systematic investment plan (SIP). That instantly made you a hostage to market timing: you bought units when the market was at around 17,000, and by the end of that year it touched an abysmally low 8,500. Had you opted for an SIP, you could have used the market upheavals to your advantage.

You say that the Sensex has risen over the particular time period that you have mentioned but the specific fund has not. If we look at the two time frames, the Sensex is up just 282 points (1.6%).*

Now let's talk about DSP BlackRock T.I.G.E.R. If you look at data over the past four years, this fund has aimed at consistency. It's more or less a middle-of-the-road performer. This is exactly what fund manager Anup Maheshwari has set out to deliver. He wants his investors to make money but does not want them to lose sleep over the market's twists and turns. He offers a compromise: a diversified offering that cuts the risk but will not deliver a show-stopping performance.

To your final question: should you hold or sell? That depends on two issues: whether or not you are comfortable with the fund's investment philosophy and strategy, and whether you believe the infrastructure theme has any steam left in it.

* Sensex levels: 17,594 (January 23, 2008); 17,876 (June 21, 2010)