Construction and engineering major Larsen & Toubro (L&T) rallied over 1 per cent on Wednesday and was the top gainer on S&P BSE Sensex, a day after the government unveiled Rs 102 trillion infrastructure plan to boost growth. Other infrastructure players; however, were trading mixed in the trade.
Finance Minister Nirmala Sitharaman on Tuesday launched a National Infrastructure Pipeline (NIP), unveiling projects worth Rs 102 trillion, to boost economic growth and help the economy reach the $5-trillion target by 2024-25. The NIP has identified projects across 23 sectors and 18 states and Union Territories, which will be funded over the next five years by the central and state governments as well as the private sector. Of the proposed projects, 39 per cent each would be implemented by the Centre and states, and the rest 22 per cent by private players. READ MORE
Sector-wise, the road sector has been allocated 19 per cent of the total investments.
Analysts, in unison, gave a thumbs up to the latest measure by the government to boost the sagging economy; however, they cautioned that in order to bring about meaningful and sustainable recovery, a lot needs to be done as regards existing issues. Yesterday's announcement could be sentimental positive for the stocks.
"Innovative sources of funding is fine but the proof of pudding is in eating," said Ajay Bodke, CEO & Chief Portfolio Manager (PMS) at Prabhudas Lilladher. The expert highlighted key issues that the infrastructure companies (including road players) in India face today. First, the working capital cycle of infra companies has got massively stretched because of large overdues pending from various government departments - both centre and states. The deterioration in the balance sheet is of concern for investors.
Secondly, the government needs to expedite the grant of orders and once the orders are granted, approvals need to be put in place. Hurdles in environmental clearances, land aquisitions have held up many projects. Hence, these gaps need to be plugged.
Further, government has been very slow in monetisation, securitisation of commissioned projects. "Why National Highway Authority of India (NHAI), which has piled up huge debts, has not been forced to package commissioned projects into large buckets and invite foreign soverign wealth funds or global pension funds to typically look for such long-term assets which give steady returns," Bodke added.
"Clearly, from a planning standpoint, the announced measure does give a boost to the companies. However, it needs to be seen how the land will be acquired, how the timeline will be coordinated, etc. Hence, one needs to watch how things pan out before taking any significant decisions," said Dhananjay Sinha, Head of Strategy and Chief Economist at IDFC Securities.
In the last six months, L&T has been an underperformer at the bourses as the shares of the company have slumped nearly 16.5 per cent (as of Tuesday's close) as compared to over 3 per cent rise in the Nifty50 index. Nifty Infra has slipped over 3 per cent during the period.