'India's infra deficit spells a decade-long opportunity'

Summary: India’s infrastructure story may be cyclical, but its deficit ensures a steady flow of long-term opportunities. Ajay Argal of Franklin Templeton explains why discipline, stronger balance sheets and selective government spending make today’s cycle sturdier, while cautioning that investors must remain vigilant in this space. India’s growth story has always leaned on its infrastructure. However, the sector’s journey has been far from smooth. From the exuberance of the mid-2000s boom to the painful bust that followed, investors have learned that discipline matters as much as ambition in this space. Today, with companies running tighter balance sheets and the government taking a more selective approach to spending, the cycle looks sturdier than before. Amid this evolving landscape, Ajay Argal, Senior Vice President and Portfolio Manager at Franklin Templeton Emerging Markets Equity – India, sees infrastructure as a theme that refuses to fade. In his view, India is an infrastructure-scarce economy, leading to a constant creation of investment opportunities. Moreover, with the government’s growing focus on manufacturing, infrastructure will remain key to India’s growth story. In this interview, Argal discusses why infrastructure remains a long-haul play, why investors should remain cautious while investing in infra stocks and the subsectors he’s optimistic about. The BSE Infrastructure Index has shifted from being among the best to one of the worst over the last year. Do you think the decline is a result of a valuation correction, or has there been a shift in the industry’s trajectory? I don’t think it’s a change in the trajectory of the industry. You have to keep in mind that the BSE Infrastructure Index is just one of the indices. Of course, it is the benchmark for our fund, but as you can see, the fund differs significantly from its benchmark. The reason is that we don’t think this benchmark is fully representative of the entire infrastructure space. For example, the NSE Infrastructure Index is another publicly available index, and when compared to the NSE 500, the difference in performance is minimal. Over the last year, the NSE Infrastructure Index was only about half a per cent different from the NSE 500. The BSE Infrastructure Index includes specific stocks that have not performed well. Regarding your question on whether valuations had run up, we had agreed a year ago that the sector had done very well. If you recall, even in our Focused Fund, until about 18 months ago, we had more than 20 per cent weightage in infrastructure. Over the next year, we brought it down to as low as 8 per cent, because we felt a lot of good news was already priced into stock valuations. Since this is the core investable universe for the Build India Fund, some correction was required and it has happened. However, I must emphasise that infrastructure remains a perennial theme in India. Our