Aegon Religare bets on power sector stocks

Aegon Religare bets on power sector stocks

Mumbai: India’s power sector stocks have surged in 2009 but are still a good bet from a three-year perspective as the country adds generation capacities to plug its large power deficit, a top investment strategist said.

The key is to pick firms which can arrange funds, have sound governance and proven execution track record, said Saibal Ghosh, chief investment officer of Aegon Religare Life Insurance Co.

He has parked a fifth of his fund’s assets in infrastructure firms, with an overweight stance on power sector stocks.

“That is the way to play the India story at this point of time," Ghosh told Reuters in an interview.

“It’s a supply constraint economy and supply has to ramp up with demand over time through de-bottlenecking of the infrastructure," he said.

His holdings include utilities NTPC and Torrent Power, power equipment maker Bharat Heavy Electricals and engineering conglomerate Larsen & Toubro.

India has expanded its roads, ports and airports to ensure a faster economic growth, but development in the power sector has lagged, with frequent blackouts in some areas.

The country’s peak power capacity is nearly 14% short of demand, while its transmission and distribution losses are a staggering 40%, according to Planning Commission data.

It estimates about $500 billion is needed to repair India’s crumbling infrastructure by 2012, with nearly a third of that in the power sector alone.

“In a power deficit country like ours, demand will never be a problem," Ghosh said, adding his major bets also included those from the consumer and financial sectors.

He said India’s demographic advantage will result in elevated income levels and higher spending, raising prospects for shares in the consumer sector.

With six in every ten Indians under the age of 30 years, demand for financial products such as insurance and loans would pick up, while a savings rate of more than 30% would largely fund the country’s investment requirements.

“A huge wave is coming there," Ghosh said. “We clearly believe that financials has got fantastic opportunity."

Wary of IT, realty

“We are quite sure about the domestic-driven economy but not really confident or sanguine about the global growth related stories," he said. He is underweight in software exporters.

Inventory restocking was behind growth in large parts of the developed world, while unemployment data was not encouraging yet.

“The reality is that three fifths of the globe ... are going nowhere so far," he said, referring to large economies.

The fund manager is also wary of Indian real estate firms and holds no exposure to the sector on valuation concern.

“I don’t understand the real estate. The net asset value or any total value calculation of real estate stocks, we don’t have the full confidence that it is reflecting the underlying value of the stock," he added.