MFs upbeat on core sector

Despite a moderation in industrial growth in the last four months, equity fund managers are optimistic about all the sectors involved in infrastructure development.

Though there are concerns over timely execution of projects and cost pressures due to surging commodity prices, rising inflation and interest rates, they believe the sector is poised to make a comeback in six months. By then, fund managers feel, inflation and interest rates will ease.

Krishna Kumar, fund manager, Sundaram BNP Paribas Mutual Fund, said, “I think, definitely there is a visible slowdown in many areas, but the underlying fundamentals are strong. Over the next six months, we can see improvement happening in the (index of industrial production) number.”

The Central Statistical Organisation last week had said the country’s Index of Industrial Production (IIP) in June declined to 5.4 per cent from 8.9 per cent a year ago.

“Execution delays and cost pressures (that companies face) are the main concerns. But we feel it should ease over the next six months, and normalcy should return in 12 months from now as interest rates would peak and inflation should be under control by then,” Kumar said.

India’s headline inflation for the week ended August 2 rose to a 13-year high of 12.44 per cent from 12.01 per cent in the previous week. The headline inflation has been in double digits for the last eight weeks. The Reserve Bank of India (RBI) expects the figure to remain high for the next few more weeks, and to show signs of moderation from October-November.

RBI has a stated a target of 7 per cent for inflation by March 2009, and aims to bring it down progressively to 5 per cent and 3 per cent in the medium term.

Jayesh Shroff, fund manager, SBI Mutual Fund, said, “High interest rates and commodity prices have affected the execution cycle of these companies.

Definitely, there is a slowdown, but I think we need to see how the execution (of projects) happens.”