Gas Transmission Is The Contrarian Fund Manager's Bet

The Nifty 50 has been volatile in 2025, making investment decisions challenging for many. This coupled with the poor performance of momentum strategies during market downturns, prompts a looks into moves by 'focused' and 'value' mutual funds.

Buying and selling activity by such funds revealed a single sector with divergent trends: gas transmission.

The analysis is based on the distinct investment strategies the funds work on:

• Focused Funds: These invest in a limited number of stocks and concentrates the portfolio based their best investment ideas. They buy what's going up, and sell what's going down.

• Value Funds: These focus on undervalued stocks, or identify companies with strong fundamentals, but are currently out of favour with the market. Their strategy is contrarian and thus they buy what's going down, but at attractive valuations.

While focused mutual funds have been selling in the banking, chemical, non ferrous metal, plastic products and gas transmission space, average allocation of value funds in these has increased in March 2025.

The three major gas transmission stocks listed on Indian exchanges are Indraprastha Gas Ltd., Mahanagar Gas Ltd., and Gujarat Gas Ltd. The forward price to earnings multiple of these stock are currently lower than their average forward valuations.

India's gas transmission sector has experienced significant policy shifts, particularly regarding the de-allocation of Administered Price Mechanism gas. Initially, this de-allocation posed a substantial risk to gas companies' profit margins and sales growth, as it meant sourcing gas from the pricier spot LNG market. This led to the allocation being raised again.

However, on April 11, the government again reduced APM gas allocation for Indraprastha Gas and Mahanagar Gas. This time, though, the shortfall will be compensated with 'New Well Gas', which, while $1.3/mmBtu more expensive than APM gas, remains cheaper than most alternatives like spot LNG. This has improved future margin trajectory for the companies.

Other factors that have also been working for the gas transmission space is stable and rising CNG and PNG demand, lower competition from alternatives with respect to price, as well as the companies' expansion into new geographical areas.

The analyst view on gas stocks like Indraprastha Gas and Mahanagar Gas are largely bullish, and the current consensus target price suggests a 10% to 14% upside on the counters.

The view on Gujarat Gas, on the other hand, stands bearish.