Should investors lap up or ignore SBI Energy Opportunities Fund?

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₹75,000 crore of capex for new energy business. Recently, oil producer ONGC and power firm NTPC entered into a joint venture agreement to set up offshore wind energy projects. The SBI fund will be benchmarked against the Nifty Energy Index, which has delivered 20% annualized returns over a five-year period (as of 31 January), as against 14.9% annualized returns delivered by Nifty 50 Index in the same period.

“The Nifty Energy Index has gas value chain, power utility value chain, oil value chain. It has the traditional energy value chain there. However, we will be taking lot of active bets outside the benchmark.

We will be looking at lot of these new energy companies as and when the opportunity arises," Gandhi says. The fund will also be looking at power ancillary companies such as transformer manufacturers, heavy electrical equipment makers, energy efficiency plays, etc. The fund also has provision to invest in international stocks.

“Whenever we find an investment opportunity in terms of international energy companies, we will be looking at opportunities there as well," he says. The fund can invest upto 35% of its corpus to international stocks. The fund house’s joint venture partner and global asset manager Amundi can help when it comes to international investment opportunities.

For now, the tilt of the fund would be more towards large-caps, but Gandhi says as more newer energy businesses emerge, the spread across different market caps could widen. While the Nifty Energy Index has outperformed benchmark Nifty Index as mentioned above, the valuations appear to still be in favour of Nifty Energy Index. The latter is trading at 15.8-times 12-month trailing earnings, which is at a 25% discount to Nifty 50 Index.