In order to sustain 8-9% economic growth, India plans to spend around U$1 trillion on Infrastructure (Roads, Ports, Rail, Airports, Power plants) in the coming 12th five year plan. This amount is almost double of the 11th five year plan that is close to achieving its target of US$420 billion. Investments in the telecom sector accounted for majority of the infrastructure investments in the 11th plan. This continues to emphasize the government’s focus on the Infrastructure sector that is expected to help the economy remain on the growth trajectory.
A look at the past indicates that the government began Infra spending to boost the economy – to recover from the recessionary phase. However, as the economy stabilized and the stock markets picked up; a number of Infra companies approached the markets to raise funds to re-finance their debt, expand their operations and construction projects. During the year CY 2010 more than 18 companies approached the markets to raise finance via the equity route and raised approximately US$3.8 billion. Jaypee Infratech, Power Grid and SJVN were three of largest issues that approached the market during 2010 collecting US$2.3 billion. This has helped them continue with their planned project implementations on track.
However, slower FDI investments in H2 2010, high interest rates, rising input costs and delay in project implementations (due to long drawn legal compliances and policies) have become a rising concern among investors. These have led a number of investors (Mutual funds, retailers, foreign investors) to liquidate their investments. BSE CG (that constitute majority of the engineering and allied companies) clocked 9% returns over the past year (Jan 2010-Dec 2010), however, BSE Power registered negative returns of 6% during the same period. The benchmark Sensex registered returns of 17% during the period indicating that the infrastructure sector underperformed due to the above mentioned impediments.
However, the stock market correction that begun during Q1 2011, has turned beneficial for infrastructure sector stocks. The falling stock valuations; a strong order book, good corporate results and increased project spending have brought infrastructure stocks into the limelight. Investors have begun identifying value buys in the sector with a few companies on their list such as IRB Infrastructure, REC, Nagarjuna Const., IVRCL Infrastructure, GVK Power and Infrastructure, Neyveli Lignite, etc. Giving the sector a further boost is the expected infrastructure investment worth US$308 billion over the coming five years with Road, Rail and Ports remaining the focal points.