Budget 2023: Will the government's infra push help infrastructure mutual funds?

Even though the Budget 2023 didn’t have anything specifically for mutual funds, certain indirect sops are going to impact some segments or themes. Infrastructure sector schemes are likely to benefit from the increased spending on infrastructure development plans in FY2024. The finance minister included infrastructure and investment in the seven important priorities of the government in FY2024. Mutual fund managers say that this can be good news for infrastructure funds.

Currently, there are 17 mutual fund schemes that invest in the infrastructure sector. Toppers in this category have offered 13-19% returns in one year.

“Investments in Infrastructure and productive capacity have a large multiplier impact on growth and employment. After the subdued period of the pandemic, private investments are growing again. The Budget takes the lead once again to ramp up the virtuous cycle of investment and job creation,” said Finance Minister, Nirmala Sitharaman.

According to the finance minister, one hundred critical transport infrastructure projects, for last and first mile connectivity for ports, coal, steel, fertilizer, and food grains sectors have been identified. They will be taken up on priority with investment of 75,000 crore, including 15,000 crore from private sources. She also proposed fifty additional airports, heliports, water aerodromes and advanced landing grounds will be revived for improving regional air connectivity.
The finance minister also said that through property tax governance reforms and ring-fencing user charges on urban infrastructure, cities will be incentivized to improve their creditworthiness for municipal bonds. Also, like the RIDF, an Urban Infrastructure Development Fund (UIDF) will be established through use of priority sector lending shortfalls. The government expects to make available Rs10,000 crore per annum for this purpose.

“Government’s continuing push on infrastructure spending at 3.3% of GDP leading to a 33% increase in spending is positive for the infrastructure sector. Government is driving the investment cycle by taking a lead in spending. We believe private sector investments will follow which will make this cycle last longer. Railways, Urban Infra and Housing continue to be focus areas for the Government. Companies in the infrastructure space may witness a pickup in order inflows and earnings momentum is likely to remain strong. Government has also focused on new initiatives like green hydrogen and energy storage through budgetary allocations. Infrastructure funds which have higher weightage of these sectors offer the best opportunity to benefit from this theme which is expected to remain strong for next 3-5 years,” says Charanjit Singh, Fund Manager, DSP TIGER Fund.

Fund managers say that the companies dealing with infrastructure building will benefit and in turn help funds that invest in them. However, since the sector is risky and cyclical, investors should be cautious. “Building critical and futuristic infrastructure is always emphasized in budget proposals and allocations. It does make sense for investors to invest in companies that would benefit from these capital investment projects. However, as an investor, it’s crucial to evaluate all investments based on their potential for generating returns rather than just because they were highlighted in the budget. We advise investors to consider diversified equity funds, which generally have exposure to the banking, construction, and energy sectors so that they benefit when these announcements translate into EPS growth of companies in this sector,” says Santosh Navlani, COO, ET Money.