Funds rediscover love for infrastructure shares

By Nishant Kumar

MUMBAI (Reuters) - Infrastructure shares are hot commodities for funds in India after the recent elections, and their attraction is only set to grow as the new government lays out plans to improve the country's overburdened roads and bridges in next month's budget.

Fund managers are hoping the new government will bolster spending on infrastructure, remove policy bottlenecks by easing land acquisition rules and environmental clearances, amend labour laws and simplify procedures for project approvals.

While such expectations have helped infrastructure shares surge twice as fast as India's benchmark index since mid-May, a clear roadmap in the budget would further improve visibility and could convince the funds to pay even higher valuations.

Fund managers are also betting on a pick-up in earnings for such firms later this year, helped by lower interest rates and commodity prices and a revival in economic growth.

"Basically the opportunity is very big," said Sankaran Naren, equity chief investment officer at ICICI Prudential. All that is required is for everything to be lubricated properly. I am interested in clarity," Naren, who manages about $780 million in India's biggest infrastructure mutual fund, added.

Engineering firms Bharat Heavy Electricals, Larsen & Toubro, Crompton Greaves and Reliance Infrastructure, were among the 20 most popular stocks for domestic fund managers in May.

The shopping list also included construction firms Jaiprakash Associates and Punj Lloyd, as funds sought exposure to sectors such as power and construction.

India's biggest fund firm, Reliance Capital, is raising money for a new infrastructure offering, while rival Tata Mutual Fund sought approval this month to launch its fourth such fund.