Good time to buy infra-related stocks for the long term: Analysts

A significant increase in planned public-sector capital expenditure will be credit-positive for infrastructure companies

Shares of infrastructure companies, including cement, have rallied by up to 17 per cent on the bourses following the announcement of increased spending in the sector in the Budget. In contrast, benchmark indices the BSE Sensex and the National Stock Exchange’s Nifty moved up only by about one per cent.

Among individual stocks, NCC, Ahluwalia Contracts, JK Lakshmi Cement, Mangalam Cement, J Kumar Infraprojects, KNR Constructions, Simplex Infrastructures, Larsen & Toubro (L&T), Bharat Heavy Electricals (BHEL), Siemens, Voltas, UltraTech Cement, Ambuja Cements, ACC and Shree Cement were among the top infrastructure and cement stocks that gained ground.

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.

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 (National Investment and Infrastructure Fund), are good moves 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. However, they suggest buying from a long-term perspective.

“For 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 per cent over the next two years. However, one needs to be selective,” says Badshah.

Analysts at Morgan Stanley believe the Budget was focused on both a revival of public-private partnerships 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 Infrastructure Developers (beneficiary of the massive increase in road spending allocation),” they said in a post-Budget note.

Deven Choksey, managing director and CEO of 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.

According to analysts at CLSA, the increase in National Highways Authority of India’s capex is positive for all engineering and construction companies in their coverage universe.