High capex spend to trigger a re-rating in infra, capital goods

Analysts said higher spending could revive the fortunes for companies in capital goods, construction, building materials and commercial vehicles segment. L&T, UltraTech Cement, JSW Steel, Siemens and PNC Infratech are among their top picks.

The markets had expected an increase of 15-20% in the overall capital expenditure.

“The budget has a clear focus on addressing the supply-side issues and significantly increasing the allocation for capital expenditure to support the nascent investment cycle in the economy. Including the grants, the total capex is estimated to touch ₹10.68 lakh crore in FY23,” said Gaurav Dua, head of capital market strategy at Sharekhan. “It would directly benefit engineering and construction firms and building material companies such as L&T, PNC Infra, JSW Steel, UltraTech, Dalmia Bharat, among others.”

Stocks such as L&T, IRB Infrastructure, Siemens, HCC, UltraTech, Shree Cement, Ambuja Cements, Dalmia Bharat, JSW Steel, SAIL and Jindal Steel & Power rallied 4-7% on Tuesday.

The finance minister announced the master plan for expressways, expanding national highway by 25,000 km, new projects in multi-modal parks, 100 cargo terminals over three years, new trains and ropeways. Allocation to roads has increased by over 50%.

With increased allocation, the budget has primarily addressed the infrastructure spending needs, and now the focus is on creating new infrastructure projects through the Gati Shakti Scheme, said analysts.

“Such a massive growth of 35.4% in fiscal capex will trigger business growth for sectors like infrastructure, capital goods, industrial, metals and manufacturing,” said Vinod Nair, head of research, Geojit Financial Services. “Stocks such as Tata Steel, L&T, Siemens, Hindalco, KNR, PNC Infra, Bharat Forge are some of the biggest beneficiaries of infra spending.”

Deepak Jasani, head of research at HDFC Securities, too, said higher spend on infrastructure will augur well for construction, capital goods, metals, cement and pipe manufacturers such as ABB, Siemens, L&T, ACC, UltraTech, among others.

The government has allotted ₹48,000 crore for housing projects under the affordable housing scheme, which would boost the prospects of cement companies, while the ₹60,000-crore allocation for providing access to tap water to 38 million households will be a positive for pipe manufacturers such as Finolex Industries, Supreme Industries, Astral, Prince Pipes, according to analysts.

The focus on capital expenditure is also positive for commercial vehicles, electric vehicles and tractor manufacturers, said analysts. “The infra spending is also a big positive for the commercial vehicle space, especially the medium and heavy commercial vehicles segment,” said Shashank Kanodia, analyst, ICICIdirect.