INSUBCONTINENT EXCLUSIVE:
ET Intelligence Group: Who benefits from the infra push — investors in blue-chips, or those looking beyond the biggest in business? This
is the question being widely discussed — in Mumbai’s packed commuter-train coaches and on social media — since the government
announced plans to invest Rs 102 lakh crore to add more muscle to India’s infrastructure
Many believe the government’s move will help broad-base the rally
First, the weightage of infrastructure companies in the Nifty 50 is too low — at 5.8 per cent — to trigger a meaningful rally
Hence, infrastructure companies can’t really enhance the Nifty’s earnings.
Second, a Nifty rally can be triggered only if appetite for
the Build Operate and Transfer (BOT) asset-owners in the infrastructure sector shows pronounced improvement
High appetite for BOT projects improves credit growth in the economy as lending from banks improves
And banks or financials have the biggest weightage in the Nifty.
The share of BOT project awards at the National Highways Authority of India
(NHAI) came down to 14 per cent between FY14 and FY19 from 88 per cent between FY11 and FY14
This fall reflects the economic slowdown, which affected traffic estimates and weakened the ability of companies to service interest on
debt.
Hence, it seems unlikely that infrastructure companies will trigger a rally in the Nifty.
Beyond the spotlight, however, the picture
Outside of the Nifty 50 index, the weights of infrastructure companies in indices such as the next Nifty 50, Nifty 100, and Nifty 500 are in
the range of 7-13 per cent
Such weights provide reasonably good scope for earnings growth in these indices.
Hence, savvy fund managers and analysts believe the market
cannot inordinately depend on the extremely expensive Nifty stocks
They believe the next rally will be broader, and the candidates are constituents of smaller indices.
About three-fifths of the total
investments in the infrastructure sector are divided among roads, energy and railways, while the rest covers urban infrastructure
In these investments, about 42 per cent of the projects are already under implementation
This shows that the execution of order books in the present calendar year and the next fiscal is likely to show pronounced improvements.
In
the listed space, only a select few companies such as Larsen - Toubro, PNC Infratech, KNR Constructions, and Dilip Buildcon are expected to
show 15-25 per cent growth in their earnings per share (EPS) in the next two fiscals, given their relatively strong balance sheet, order
book to sales ratio (3-4) and superior execution capabilities
Earnings in sectors such as cement, power and railroads will also benefit from the multiplier impact of the proposed investments.
