A significant increase in planned public-sector capital expenditure, coupled with measures to increase investment and financing in the private sector, will be credit-positive for infrastructure companies
Shares of infrastructure companies, including cement, have rallied by up to 10 per cent on bourses since increased spending in the sector was announced in the Union Budget for 2015-16. In contrast, the benchmark indices, the BSE Sensex and the National Stock Exchange’s Nifty are trading almost flat.
Larsen & Toubro, Bharat Heavy Electricals Ltd (BHEL), Siemens, IRB Infrastructure Development, UltraTech Cement, Ambuja Cement, ACC and Shree Cement are among the frontline infrastructure and cement stocks that have rallied between 2 per cent and 3 per cent on BSE.
Ashok Buildcon, Simplex Infrastructures, Sadbhav Engineering, Ahluwalia Contracts and Jaypee Infratech have rallied between 5 per cent and 10 per cent, while Hindustan Construction Company, IVRCL, NCC and Elecon Engineering Company have gained in the range of 2-4 per cent on BSE.
A significant increase in planned public-sector capital expenditure, coupled with measures to increase investment and financing in the private sector, will be credit-positive for infrastructure companies, say analysts.
Budget 2015: Complete Coverage
With an aim to provide renewed impetus to investment cycle, some of the measures proposed in Budget include creation of a National Infrastructure and Investment Fund (NIIF), with annual inflows of Rs 20,000 crore (Rs 200 billion), corporatisation of ports, strengthening and resuscitating of public-private partnership (PPP) framework and the announcement of five new ultra mega power projects (UMPPs).
The Budget also proposed an increase in planned allocation for the road transport and highways ministry to Rs 42,913 crore (Rs 429.13 billion) for 2015-16, from Rs 28,881 crore (Rs 288.81 billion) in the current financial year. For 2015-16, the increased provisions have been made for development of national highways, including projects related to expressways and six-laning of crowded stretches of the Golden Quadrilateral and two-laning of highway works under the National Highways Development Project.
For the roads sector, the Budget proposals included connecting each of the 178,000 unconnected habitations by all-weather roads. This will require completing 100,000 km of roads currently under construction, in addition to sanctioning and building another 100,000 km.
Taher Badshah, senior fund manager and co-head of equities at Motilal Oswal AMC, says: “The rally in these stocks comes on the back of Budget proposals. The measures proposed are good; now one needs to see on-ground implementation. The initiative for the infrastructure-related sector has to come from the government, instead of the private sector.
It is the public sector that has to drive this initially. The increased allocation in infrastructure and related sector, and the proposal for creating NIIF, are good moves that I think are measures to kick-start activity in this sector. Once the on-ground activity starts, even the private sector will start participating, in a couple of years.”
Stock strategy
Despite these stocks running up against the backdrop of Budget proposals, analysts remain positive on the road ahead for the companies in the infrastructure-related sector. But they suggest buying from a long-term perspective.
“For the investors who wish to invest now and participate through the infrastructure sector stocks over the next one or two years, it is a good time to bite the bullet and jump in. There are opportunities in this sector and stocks can move up 30-50% over the next two years. However, one needs to be selective,” Badshah says.
Analysts at Morgan Stanley believe the Budget was focused on both a revival of PPPs and the overall capital expenditure. “We would look to play it through a combination of executors with good track record, such as L&T (beneficiary of the potential increase in capital expenditure and infra allocation), and developers with strong cash flows, such as IRB (beneficiary of the massive increase in road spending allocation),” they said in a post-Budget note.
Deven Choksey, managing director & chief executive, K R Choksey Securities, also remains positive on the infrastructure theme and prefers to play this through stocks in ports and power-generating companies. “We also like large-cap capital goods stocks and suggest buying those on a decline. Real estate, however, is one theme we are still not comfortable with,” he says.
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