March 8, 2018

Infrastructure Industry Analysis

ALWAYS – INVEST IN WHAT YOU KNOW & WHAT YOU CAN UNDERSTAND. DEVELOP CURIOSITY AS A TRAIT

 

Must know facts:

  • Constituents that come under infrastructure – Power generation, Bridges, Damns, Highway Construction/widening, Rail/Airway Freight Traffic, Cargo movement in ports – Export/Import.
  • As per report by BMI Research  – India’s infrastructure market is the third-largest in Asia, and is forecast to overtake Japan’s in nominal value terms by 2023.
  • As per Economic Survey 2017 – Infrastructure activities that registered the highest growth include – export cargo (10 per cent), highway construction/widening (9.8 per cent), power generation (6.6 per cent), import cargo (5.8 per cent) and cargo at major ports (5.3 per cent).

Influencing Factors for price change:

  1. Stocks in Infrastructure are best judged by benchmarking against ‘NIFTY INFRA’.
  2. Watch out for government infrastructure projects / initiatives like – Namami Gange project, Special Accelerated Road Development Programme for North East (SARDP-NE).
  3. Contracts awarded under the Smart Cities Mission.

 

Understanding the Industry:

India’s economy is big and getting bigger. PricewaterhouseCoopers estimates that India will become the world’s third largest economy by 2050. Liberalisation of government regulations and a deliberate strategy on the part of the Indian Government to promote infrastructure spells opportunity for E&C companies. Nearly all of the infrastructure sectors present excellent opportunities, with roads and highways, ports and airports, railways and power standing out as particular bright spots, with staggering sums of investment planned. Public private partnerships (PPPs) are gaining in importance, and are benefiting from government support – targeted PPP participation is US$150 billion.

Infrastructure sector is a key driver for the Indian economy. The sector is highly responsible for propelling India’s overall development and enjoys intense focus from Government for initiating policies that would ensure time-bound creation of world class infrastructure in the country. Infrastructure sector includes power, bridges, dams, roads and urban infrastructure development. In 2016, India jumped 19 places in World Bank’s Logistics Performance Index (LPI) 2016, to rank 35th amongst 160 countries.

At the same time, the operating environment of India’s construction industry remains immensely challenging, with major infrastructure projects commonly  incurring delays and cost overruns.

 

Estimated Market Size:

Foreign Direct Investment (FDI) received in Construction Development sector (townships, housing, built up infrastructure and construction development projects) from April 2000 to September 2017 stood at US$ 24.7 billion, according to the Department of Industrial Policy and Promotion (DIPP).

 

Road Ahead:

This ongoing growth is due to rapidly developing services and manufacturing sectors, increasing

consumer demand largely driven by increased spending by India’s middle class. Although demonetisation had a negative impact on construction activity in 2016 as most construction workers’ wages were paid in cash, the Fitch group company said that it believes that “robust growth will return in 2017 as work resumes on the large pipeline of infrastructure, residential and non-residential projects in the country”.

 

Top Stocks in the industry:

Larsen & Tubro, Adani Ports, BHEL, BEML, NBCC, ABB, IRB Infra, Engineers India.

(Please note above stocks are not recommendations, they are purely for information purpose only)

Information Source / References: BMI research, PWC report, Economic times publications, IBEF, ICEMA, ICRA, The Economic Survey 2016–17 & 17/18, Agricultural and Processed Food Products Export Development Authority (APEDA), Department of Commerce and Industry, Union Budget 2017–18, Press Information Bureau, Ministry of Statistics and Programme Implementation, Press Releases, Media Reports.

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