It was never a secret that there is a huge opportunity waiting to be tapped in the infrastructure sector — just take a look at the blighted nature of India’s roads, bridges, airports, ports, power etc. Shortages are rampant. Improvements have happened, but their shallow nature has ensured a huge vacuum remains. For example, peak power shortfall in capacity is nearly 15 per cent, transmission and distribution losses are at 40 per cent, the aviation sector is growing at 30 per cent per annum, but airports can’t handle the load, the country’s 3.3-million-km long road network is huge, yet it is pock-marked by pot-holes and only 8,000 kms of this boasts of dual carriageways, ports are overrun with the jump in demand, leaving actual capacity behind (Mumbai port handles 60 per cent of container traffic in India with only nine berths for cargo ships).
But now with a strong government at the Centre and the budget speech making it clear that infrastructure will be the main focus of the government, the sector has come onto the radar of every investor.
However, the term infrastructure, as defined by lobbyists, is very loose and encompasses almost anything. The reason is that a whole gamut of sectors is loosely linked to happenings in infrastructure — it is very hard to pin-point sectors that won’t be benefited or disadvantaged by a growth or decline in it.
For example, if the government creates a world class road that connects Mumbai to Delhi and has planned manufacturing hubs along the way, then even FMCG companies will benefit through improved connectivity, but that doesn’t mean companies in this segment belong to infrastructure.
Hence, such a broad definition fails to isolate the primary infrastructure beneficiary of a hike in government spending. While the trickle-down effect will benefit other sectors, yet they are going to be dwarfed by pure infrastructure players.
The article has appeared in the July 2009 issue of Wealth Insight magazine where we focussed the light on those 10 infrastructure companies that are value buys.
For starters, on http://valueresearchonline.com, we turn the spotlight on the stock:
Rural Electrification Corp (REC)
Reliance Industrial Infrastructure (RIIL)
Power Grid Corp of India
McNally Bharat Engineering (MBE)
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