As India readies for big $7 bn infra push; these 12 stocks likely to benefit the most

As India readies for big $7 bn infra push; these 12 stocks likely to benefit the most

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As India readies for big $7 bn infra push; these 12 stocks likely to benefit the most

Just when everything was going right for the Modi-led government, growth pangs was not something which they had in mind. The economy which was crowned as the fastest growing economy in the world suffered sharp fall in growth rate which hit a 3-year low in June quarter.

Some amount of slowdown was expected especially after demonetisation and implementations of the goods & the services tax, but nobody hoped that the growth rate will fall from 9 percent in 2016 to 5.7 percent in 2017.

D-Street is abuzz with news of a big stimulus package which could be as big as USD 7.7 billion, Reuters reported last week.

The extra spending was estimated to widen the fiscal deficit for the financial year ending next March to 3.7 percent of GDP from a budgeted target of 3.2 percent.

“Stimulus can potentially increase the central government’s fiscal deficit to 3.5-3.7 percent of GDP in FY18, from the budgeted 3.2 percent target (3.5 percent of GDP achieved in FY17), depending on the size of the stimulus (0.3-0.5 percent of GDP),” Deutsche Bank said in a report.

This would be a setback to the fiscal consolidation momentum that was endured through the past few years. To counter any pessimism on D-Street, the government should clarify that this is a just one-off measure to counter slowdown cause by demonetisation and GST.

The extra money will be spent more on bank recapitalisations, rural jobs programme and rural housing to boost growth in Asia’s third-largest economy.

“The India’s GDP growth unpredictably slowed in the first quarter of FY18 at 5.7 percent. With the government facing a host of criticism from the various stakeholder, the rescue effort to boost the economy trajectory has uplifted a sentiment as it prepares to stimulate the economy through the packaged offering,” Dinesh Rohira, Founder & CEO, 5nance.com.

“Despite an enfolded roadmap on the table, the probability of government stimulating through affordable housing has raised confidence set-up in the Indian economy,” he said.

However, any policy measure is unlikely to derail expectations of Modi government 2.0. The next general elections are scheduled in 2019. Fiscal slippage risks will naturally make the RBI more cautious and defensive regarding their monetary policy stance and probably mark an end to the ongoing rate cutting cycle, suggest experts.

“Modi government is always known to take some bold steps. BJP claims that the process may increase job opportunities and will help in increasing the GDP. After demonetization and GST massacre the next is a stimulus package,” Ritesh Ashar – Chief Strategy Officer, KIFS Trade Capital told Moneycontrol.

“The stimulus package seems to be a positive step as it will directly affect housing, Infrastructure companies & allied industries. The government was not particularly worried about the headline GDP growth number, which slowed to 5.7 per cent in the first quarter of FY18. Rather than growth, job creation is a priority for the government,” he said.

We have compiled a list of stocks recommended by various experts which are likely to benefit the most from govt’s decision to introduce fiscal stimulus:

Brokerage Firm: Axis Direct

Ramco Cement

After consolidating its position as a premium retail brand in South India, the company has planned for expansion in Eastern India, to completed by FY19; capacity addition in East India to reduce dependency on South Indian market.

A Strong brand with premium pricing in its home markets of Tamil Nadu (TN) and Kerala enables it to command highest EBIDTA/tonne in the industry.

Already excess clinker capacity in TN would enable Ramco to expand its capacity by just adding grinding units. No significant capacity additions by peers in the industry to help Ramco improve its pricing power in near future.

Supreme Industries

Around 12 percent volume growth led by (1) government initiatives – increased spending on irrigation, water supply, focus to double farmer income, etc. (2) affordable housing for all, and (3) increasing share of business for organized players due to confluence of GST, RERA and demonization is expected in FY18.

Supreme Industries is an investment idea with an investment horizon of over 3-5 year because of consistent growth (~15 percent p.a.), sustainable margin trajectory, RoCE focus, strong FCF generation leading to debt-free status by FY19, and regular dividend payout.

Kajaria Ceramics

The management is intending to improve the share of high value-added vitrified tiles thereby enhancing the realizations and margins.

Kajaria Ceramics would be a big beneficiary of the shift from unorganized to the organized sector in post GST scenario. Commissioning of brownfield and greenfield capacity expansion in FY18 is expected to benefit from a rise in demand from the revival of real estate sector following the push for affordable housing segment.

CanFin Homes

South India based housing finance company predominantly focused on salaried class and growing at upwards of 30 percent per annum. CanFin Homes has a well-capitalized balance sheet to support the exemplary growth trajectory.

It has reduced its dependence on bank borrowings; enhanced borrowings from debt markets have helped reduce the cost of funds. CanFin homes to be a Big beneficiary of the push for affordable housing on the back of higher growth, NIM expansion and stable cost.

Gruh Finance

Steadily growing loan book with the contained cost of funds; the company operates solely in affordable housing segment and has marked the presence in rural areas especially western parts of India with expansion plans to other geographies.

Gruh Fin. has best in class return ratios along with efficient use of capital. Strong loan book growth with 30 percent plus RoEs to help the company benefit from the push in affordable housing segment.

Government is also working on an idea which is being actively considered is to free up large land held by PSU which is mostly in the prime localities of the city could lead to a boost to the sector and also a booster to PSU Companies.

Analyst: Dinesh Rohira, Founder & CEO, 5nance.com

Housing Finance Segment: – DHFL, PNB Housing, GIC Housing

Affordable housing finance is set to be a Rs. 6 trillion business in next 7 years and, it anticipates that about 25 million demand for housing is expected to come from medium-income & lower-income group in the same period.

A combined afford from the government through stimulus policy & strong regulatory ease coupled with rising urbanization & changing lifestyle, the growth predictability in housing finance segment remain intact for the selected stock.

Similarly, DHLF, PNB Housing and, GIC housing reported a considerable growth in net profit for the Q1FY18 at 29 percent, 93 percent and, 25 percent respectively.

The company also witnessed substantial growth in loan book, while its gross non-preforming asset remaining flat. The niche offering from this company is further expected to boost the ticket-size as it focuses to penetrate in the urban & semi-urban market in an effort to realise the government’s vision for affordable housing by 2022.

Cement Segment: – UltraTech Cement, Grasim Industries

Despite a muted growth in a cement sector on the backdrop of poor infrastructure development, the sector is expected to witness growth as government focuses to improve infrastructure coupled with housing program in its stimulus policy to drive the economy growth.

Current cement industry has a total capacity of 435 million tonnes per annum, while it utilizes only 280 MT for meeting the domestic demand, thus providing a scope for growth in medium-term.

Although facing a headwind on the backdrop of destocking in the value-chain from GST regime, UltraTech Cement & Grasim Industries reported a rise in net profit for the Q1FY18 at 9.5 percent and 9.4 percent respectively.

The company also witnessed a considerable growth in volume over the same period. UltraTech Cement also completed the acquisition of cement plants from Jaiprakash & Jaypee cement which is expected to enhance the volume growth, while Grasim is also planning to outline investment plan to expand its capacity

Paints & Ply: – Berger Paints, Century Plyboards

The companies under home improvement are also the ultimate beneficiary of this policy development. The boost in the housing sector will certainly ease at improving the company’s margin over a medium-term after a long halted growth.

Analyst: Ritesh Ashar – Chief Strategy Officer, KIFS Trade Capital

L&T Finance

L&T Finance is amongst the top 5 NBFC present in the market available at lower valuations. The market cap of L&T Finance is higher than all listed public sector bank except State Bank of India.

LTFH has a housing finance book of INR125b with a diversified product suite, comprising home loans, LAP, construction finance and LRD. Home loans and LAP constitute 60 percent of the overall book, while corporate loans account for the remaining. LTFH entered the 2W financing business via the acquisition of Family credit.

[“Source-moneycontrol”]