DSP is bringing back the TIGER. Should you ride it?

TIGER stands for the ‘the infrastructure, economic reforms and growth’ fund. What later happened to the DSP TIGER Fund is a great lesson for mutual fund investors. When the global recession of 2008 struck, TIGER crashed 58%. By November 2010, the market had staged a comeback and TIGER’s NAV again reached within 10% of its peak. But that was a false recovery.

Real estate and infrastructure sectors entered a lost decade. The great names of 2007 and 2010, like Lanco, GVK, GMR, and Unitech, faded away, and new sectors took over as theinfra-realty sectors saw a churn. A change of government at the Centre also catalysed some shifts.

After nearly 16 years in the wilderness, infra and realty saw a significant revival last year. The fund has surged by 81%, though valuations appear stretched. The portfolio's trailing PE ratio stands at 27 times, compared to 21 for the Nifty. This is partly due to the fund's exposure to mid and small-caps (54% of its portfolio) and its avoidance of relatively cheaper banks.

Fund manager Charanjit Singh has been in place since 2018 and is quite bullish on a sustained infrastructure revival. He points to diminishing capacity utilisation, a pick up in orders and structural displacement of manufacturing from China to India.

However, DSP AMC CEO Kalpen Parekh strikes a more conservative note. “We want people to know how much the fund has fallen in the past. We want people to stick to SIPs only, not invest lump sums. The fund has run up," he told a group of reporters at a press conference.

Yet the fund house is keen to bring this horse out of the stable. It is an ‘OFO or Old Fund Offer’ says Parekh with chuckle - a dig at his peers' penchant for launching new fund offers or NFOs based on the fashionable themes of the day. DSP is keen to portray the fund as a ‘side bet’ asking investors to consider it for 10-15% of their portfolio for a period of at least 5 years.

“Investors don't have the patience for 15 year downcycles, in fact they can't even wait 2 years normally," said Amol Joshi of Plan Ahead Rupee Services. “They also cannot time these entries and exits. Fund houses should take these bets in their diversified funds," he added.

The strategy of side bets and timing market cycles also leads to unnecessary tax leakage when profits are booked and redemptions made. Riding the cycle may not be everybody’s cup of tea.

Expert speak

The fund has a strong focus on infrastructure stocks that have appreciated significantly in recent times. According to the experts, this is due to a strong order book. They suggest that investors should be cautious while allocating their investments in this sector as it has its own potential risks as well.

“The fund has a strong focus on infrastructure, and we view the current infrastructure sector positively due to a healthy order book," says Vishal Dhawan, founder & CEO, Plan Ahead Wealth Advisors. “However, stocks in this sector are currently trading above historic valuation levels. The main risk with infrastructure projects lies in the ability to execute them at the agreed-upon cost, as profit margins and overall business profitability depend heavily on meeting contract terms for timely delivery and cost management."

Experts recommend a longer investment horizon or systematic investment plans (SIPs) for the infrastructure sector due to several factors. Infrastructure projects often have long gestation periods, and while supported by strong reforms, realizing their economic benefits can take years. A longer horizon helps investors weather volatility and benefit from the growth these projects can deliver. Additionally, the sector is sensitive to economic cycles and policy changes.

“Given the significant attention this sector has garnered in the last 2-3 years, most stocks are now priced at a premium,"says Vishal Dhawan. “Therefore, investors interested in this sector should consider a long-term investment horizon of at least 10 years or use systematic investment plans (SIPs) over an extended period to benefit from this fund. This approach allows for a more balanced participation in this theme. While economic reforms are important, they should not be the sole basis for an investment strategy."

He also warns against the overexuberance seen during previous sector peaks in 2005 and 2007. Investors should make informed allocations, keeping in mind the inherent risks to fully capitalise on the potential of infrastructure investments