After months of tepid performance, infrastructure mutual funds are back in the spotlight—delivering some of the highest returns in the last quarter among thematic fund categories. A combination of expected rate cuts and a rally in defence-linked infrastructure stocks has triggered a sharp turnaround, pulling the segment out of a prolonged slump.
According to the latest data, infrastructure mutual funds delivered an average return of 19.40% over the past three months. This marks a significant reversal from their one-year average return of -3.15%, reflecting strong near-term momentum in the sector.
Top performers in the pack
Several funds have outperformed the broader category during this bounce-back. The Invesco India Infrastructure Fund topped the charts with 26.82% returns in three months, rebounding from a six-month return of -2.63% and a one-year return of -1.86%.
Not far behind was the LIC MF Infrastructure Fund, which returned 26.20% in the last three months, recovering from -4.56% over six months. Interestingly, it also turned positive on a one-year basis, delivering 6.31%.
The Kotak Infra & Economic Reforms Fund saw a three-month return of 25.07%, while the Bandhan Infrastructure Fund gained 23.89% despite posting a one-year loss of -2.6%. Meanwhile, the Canara Robeco Infrastructure Fund, while more consistent over the long term, continues to maintain a strong three-year CAGR of 21.36%.
What’s fuelling the rally?
Two key themes are driving this sharp upswing.
First, interest rate expectations. With inflation easing and the market now pricing in potential rate cuts by the Reserve Bank of India, investor sentiment around rate-sensitive sectors like real estate and infrastructure has turned bullish. These sectors typically benefit from lower borrowing costs due to their capital-intensive nature, making them particularly responsive to monetary policy changes.
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Second, the ongoing rally in defence stocks—many of which fall under broader infrastructure fund classifications—is also contributing to the surge. Stocks tied to public infrastructure and government contracts, including those from the defence construction space, have been on a strong upward trajectory in recent weeks.
Stocks lifting the index
Most infra mutual funds mirror indices like the BSE India Infrastructure Index, which has seen major gains thanks to a few standout performers:
- NBCC (India), a key player in government-backed construction projects, surged 68.97% in just three months.
- Ircon International, focused on railway infrastructure, jumped 55.24%.
- Kalpataru Projects, active in civil engineering and power infrastructure, gained 38.17%.
- Adani Ports and SEZ, a bellwether for India’s port infrastructure, rallied 36.34%.
These high-growth stocks have been crucial in lifting the overall performance of infra-focused mutual funds.
Outlook: Optimistic, but with caveats
While the short-term performance is encouraging, analysts caution against chasing returns blindly. Infrastructure remains a cyclical and policy-sensitive sector, and any volatility in RBI’s rate path or slowdown in project execution could weigh on future returns.
For investors, the recent performance may be a signal to revisit infra-themed funds—but with a long-term investment horizon and appetite for moderate risk.