Top 5 Mutual Funds Paving the Way to Wealth with Indian Road & Highway Stocks

January 30, 2024 Mutual Fund

Infrastructure is a term that refers to the common physical systems of a country, business, or region. For example, communication networks, transportation systems, and utilities like gas, electricity, water, etc. come under Infrastructure.

Note that these systems are crucial for a country’s growth, development, and prosperity. Another thing about these systems is that they tend to be a high-cost investment and are also capital-intensive.

India’s road infrastructure is a vast and complex topic, with both impressive achievements and ongoing challenges. Road transportation has gradually increased over the years with improvements in connectivity between villages, towns, and cities across the country. This extensive network plays a crucial role in facilitating trade, commerce, and passenger movement.

Efficient road transport contributes to economic growth by lowering logistics costs, expanding market access, and boosting manufacturing and trade. Improved connectivity also enhances access to education, healthcare, and other essential services, especially in rural areas.

About Indian Road Infrastructure

India has the second-largest road network in the world, spanning a total of 6.3 million kilometres (kms). This road network transports 64.5% of all goods in the country, and 90% of India’s total passenger traffic uses the road network to commute.

In India, the sale of automobiles and the movement of freight by roads is growing rapidly. The government has made major strides in upgrading and expanding the road network, constructing over 35,000 kilometres of four-lane or more highways since 2023.

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Highway construction in India increased at 17.00% CAGR between FY16 and FY21. Despite the pandemic and lockdown, India has constructed 10,457 km of highways in FY22. India had a total of 97,830 km of National Highways in 2014-15 which has expanded to 145,155 km by March 2023.

While the overall length of roads is impressive, a significant portion remains unpaved or in poor condition, impacting safety and travel times. Maintenance and repair practices also require improvement to ensure long-term durability.

Traffic congestion is a major concern in many cities, especially during peak hours. This leads to increased travel times, fuel consumption, and air pollution. Road accidents are a rising issue in India, with high fatality rates attributed to factors like speeding, unsafe driving practices, and inadequate road infrastructure.

India’s road infrastructure presents a mixed picture. While significant progress has been made, ongoing efforts are necessary to address quality, safety, and congestion issues. Continued investment and technological adoption are crucial to ensure a robust and efficient road network that supports the country’s economic and social development goals.

Government Measures to Improve Road Infrastructure in India…

• Under the Union Budget 2023-24, the Government of India has allocated Rs 2.7 lakh crore (USD 33 billion) to the Ministry of Road Transport and Highways.
• The Union Minister of State for Road, Transport and Highways has stated that the government aims to boost corporate investment in roads and the shipping sector and introduce business-friendly strategies, which will balance profitability with effective project execution. 
• In FY24, the NHAI endeavours to come out with the third and fourth rounds of Infrastructure Investment Trusts (InvITs) to raise over Rs 20,000 crore (USD 2.41 billion).
• The government has launched several initiatives to address the challenges, including the Bharatmala Pariyojana, National Highways Development Project, which aims to develop a network of expressways and economic corridors.
• The Pradhan Mantri Gram Sadak Yojana, focusing on rural road connectivity, as of June 5, 2023, constructed a total of 737,230 km of road length.
• Integration of intelligent transportation systems, toll plazas, and digital mapping is being explored to improve traffic management and safety.

India’s economy is growing rapidly, and its infrastructure needs are vast. The government has committed to investing heavily in infrastructure development, including roads and highways. This could lead to strong returns for investors.

One may consider investing in Indian road infrastructure; however, there are some risks like – political risk, regulatory risk, project execution risk, etc., which could impact the sector’s performance and, in a way, affect investors.

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Mutual funds are an investment option that could help mitigate the overall risk that direct equities carry. Investing in mutual fund schemes with high allocation to Indian road and highway stocks could assist investors in gaining exposure to the growth potential of road infrastructure in a risk-averse manner.

#1 – Bandhan Infrastructure Fund (Sectoral Fund)

Bandhan Infrastructure Fund invests predominantly in equity and equity-related instruments of companies that are participating in and benefiting from growth in Indian Infrastructure and infrastructural-related activities.

The scheme invests across the market cap, and as of December 2023, it holds 34.56% allocation in large caps, 19.92% allocation in mid-caps and 44.22% in small caps. The scheme holds an AUM of Rs 882.02 crore and is benchmarked against the Nifty 50 index.

Do note it has a higher allocation to small-cap stocks, which are highly risky and sensitive to market fluctuations. Thus, investors may consider their suitability and invest only after analysing a proven performance track record.

Bandhan Infrastructure Fund – Allocation to Road & Highway Stocks

Data as of December 31, 2023
(Source: ACE MF) 

Bandhan Infrastructure Fund holds maximum exposure in stocks of PNC Infratech Ltd., which is one of India’s leading infrastructure development companies. Expertise in constructing and managing highways, expressways, bridges, flyovers, airport runways, water supply systems, and industrial areas.

The scheme also holds significant exposure to H.G. Infra Engineering Ltd. and Engineers India Ltd. Currently, the overall exposure to road and highway stocks accounts for 7.82% of the scheme’s assets.

#2 – Quant Infrastructure Fund (Sectoral Fund)

Quant Infrastructure Fund aims to generate capital appreciation & provide long-term growth opportunities by investing in a portfolio of infrastructure-focused companies. It currently holds an AUM of Rs 1321.56 crore and is benchmarked against Nifty 50 – TRI.

Quant Infrastructure Fund – Allocation to Road & Highway Stocks

Data as of December 31, 2023
(Source: ACE MF) 

The scheme invests across the market cap, and as of December 2023, it holds 44.18% allocation in large caps, 12.92% allocation in mid-caps and 30.37% in small caps. Do note it has a higher allocation to small-cap stocks, which are highly risky and sensitive to market fluctuations.

Overall, the scheme holds road & highway stocks exposure of 6.29% in IRB Infrastructure Developer Ltd., India’s prominent integrated private sector developer of BOT (Build-Operate-Transfer) and Hybrid Annuity Model (HAM) road and highways projects.

#3 – Samco Flexicap Fund (Market Cap Fund)

Launched in February 2022, Samco Flexicap Fund seeks to generate long-term capital growth from an actively managed portfolio of Indian & foreign equity instruments across market capitalisation. As of December 2023, the fund has 29.81% in large caps, 35.66% in mid-cap stocks, and 20.57% in small-cap stocks.

However, since the scheme was launched recently, it has no long performance track record.

Samco Flexicap Fund – Allocation to Road & Highway Stocks

Data as of December 31, 2023
(Source: ACE MF) 

Samco Flexicap Fund has an overall allocation of 5.92% in L&T Technology Services Ltd., which indeed has a presence in India’s road infrastructure sector, albeit not directly involved in construction or development projects. It does provide digital engineering and technology solutions on a large scale to Indian road infrastructure projects.

#4 DSP India T.I.G.E.R Fund (Sectoral Fund)

The scheme endeavours to generate capital appreciation from a portfolio that is substantially constituted of equity securities and equity-related securities of corporates, which could benefit from structural changes brought about by continuing liberalisation in economic policies by the government and/ or from continuing investments in infrastructure, both by the public and private sector.

The scheme currently holds an AUM of Rs 3023 crore and is benchmarked against the Nifty 50 Index.

DSP India T.I.G.E.R Fund – Allocation to Road & Highway Stocks

Data as of December 31, 2023
(Source: ACE MF) 

In terms of road & highway stocks, this scheme holds a major allocation of around 6.29% in IRB Infrastructure Developers Ltd. The fund also has exposure to Engineers India Ltd., PNC Infratech Ltd., KNR Constructions Ltd. and H.G. Infra Engineering Ltd.

The scheme invests across market segments such as – 34.02% allocation into large-cap stocks, 20.07% and 43.68% in mid and small-cap stocks, respectively. Do note it has a higher allocation to mid and small-cap stocks, which are highly risky and sensitive to market fluctuations. Investors may consider their suitability before investing.

#5 Motilal Oswal Focused Fund (Focused Fund)

Motilal Oswal Focused Fund aims to provide long-term capital appreciation by investing in large, mid and small-cap stocks across market capitalisation. Currently, the scheme holds an AUM of Rs. 1784.20 crore and is benchmarked against Nifty 500 TRI.

Motilal Oswal Focused Fund – Allocation to Road & Highway Stocks

Data as of December 31, 2023
(Source: ACE MF) 

The scheme holds 51.17% in large caps, 30.51% in mid-caps and 15.98% in small caps as of December 2023. The overall allocation to road & highway stocks is around 5.28% in L&T Technology Services Ltd.

Although sectoral/thematic mutual funds could be a good diversifier to your portfolio, it takes at least a few years to reach their potential. Investors may consider taking a plunge into these mutual funds only after thorough market research and assessing their suitability based on risk tolerance, investment horizon and goals.

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Outlook for Indian Road Infrastructure

India’s economy is projected to grow steadily, fuelling demand for efficient road infrastructure. The government has pledged USD 1.4 trillion for infrastructure development by 2025, with a significant portion earmarked for roads and highways.

The government, through a series of initiatives, is working on policies to attract significant investor interest. Integrating green technologies and promoting sustainable construction practices are becoming increasingly important in road infrastructure development.

In 2024, India is gearing up for a major highway revolution as new expressways are all set to transform how we travel. National highways and expressways now cover around 151,000 kilometres, with plans to expand further. The government also aims to construct 23 new national highways by 2025.

A total of 600+ sites are planned to be awarded by 2024-25 of which 144 Wayside Amenities (WSAs) have already been awarded. In the next five years, the National Highway Authority of India (NHAI) will be able to generate Rs 1 lakh crore (USD 14.30 billion) annually from tolls and other sources.

Overall, the outlook for Indian Road Infrastructure is promising. Continued government commitment, private sector participation, and technological adoption are crucial for overcoming challenges and building a robust, efficient, and sustainable road network that supports India’s economic and social development goals.

This article first appeared on PersonalFN here