Analysts bullish on construction, engineering

The Indian government announced in its annual budget on February 1 that the country will increase infrastructure spending by 33% to 10 trillion rupees ($122.29 billion) in the next financial year.

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The Indian market has been volatile when The Adani crisis continues to dominate the headlines, but analysts say this could be a buying opportunity.

In particular, some are optimistic about the construction sector and think that boosting infrastructure can benefit cement stocks.

In a January note, Bernstein analysts led by Venugopal Garre said they were “generally optimistic about the property cycle and the potential for a better rural environment.”

Mr. Garre said investors may consider entering the country’s infrastructure sector through domestic cement names.

Cement: UltraTech, Ambuja

Bernstein likes UltraTech Cement — a company that Garre says is capable of keeping up with the growing number of upcoming real estate projects in India.

He said “70% of cement demand comes from real estate and 30% comes from infrastructure” and added that when a new property is built, cement is needed from day one of the cycle. project started.

This is not the same as electrical equipment or circuits that are only needed during the third or fourth year of a construction project, he explains.

India's cement stocks 'will do very well', investment management firm says

Sanjiv Bhasin, director at IIFL Securities, also said UltraTech Cement is one of the company’s “top picks”, along with Ambuja Cement.

Shares of UltraTech Cement were trading at around 7,123.05 on Wednesday, 0.21% lower. According to FactSet, the stock is close to hitting a 52-week high on the day.

Government spending on infrastructure is growing and “we think cement prices are going higher because we [are going] in the season when construction activity can be at its highest,” Bhasin said.

FactSet data shows that shares of Ambuja Cement are down 34% year-to-date. Bhasin has said the stock should be bought and that it is a “great opportunity” despite the current market volatility.

The Adani Group owns a 63.15% stake in Ambuja Cement, Refinitiv said.

Praveen Jagwani, managing director of UTI International Singapore, said Ambuja Cement prices are falling “because it exists in the Adani umbrella”.

“This temporary setback is just a buying opportunity… We still think UltraTech and Ambuja are playing very, very well in the cement business,” Bhasin said, adding that the driving force behind corporate spending was infrastructure will make these names perform better in the near future. a quarter.

Boosting India’s Infrastructure

Morgan Stanley is bullish on India’s industrial sector, its analysts said in a note on February 1 after the release of the budget.

“As the Budget supports investment capital and job creation, we are still building on the strength of domestic demand,” said the financial services company.

Finance Minister Nirmala Sitharaman announced in the annual budget last week that the country will increase infrastructure spending by 33% to 10 trillion rupees ($122.29 billion) in the next financial year. The Indian financial year begins in April and ends in March of the following year.

Jagwani told CNBC that India’s building materials industry will see some upside from increased capital spending, but investors must be “very careful” when choosing cement stocks.

Mr Jagwani warned that India needs more high-quality commercial buildings, roads and airports, but the country’s infrastructure sector is also “super unpredictable and risky”.

Jagwani points out that return on investment falls every year when infrastructure projects are delayed, while claiming that happens frequently in India.

Engineering: ABB India, Siemens India and more

IIFL Securities said engineering companies focused on infrastructure and construction are also good stocks to buy.

These include ABB India, Siemens Indiaand Larsen & Turbo.

Larsen & Turbo Bhasin said it will launch with “higher double-digit margins and their strongest order flow”.

UTI International likes it too Paint Bergerwhich Jagwani said has an “element” for continued sales growth and will benefit not only from newly built buildings but also older ones that need maintenance.

“The paint market is changing,” he said. People need to paint their houses and apartments every few years because of rain and extreme heat.

However, the stock is down 4.5% year-to-date and is close to a 52-week intraday low of Rs 527.6 crore. Berger Paints was trading at around Rs 555.45 on Wednesday.

— Michael Bloom of CNBC contributed to this report.


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