Analysts bullish on construction, engineering

Indian markets have been volatile as the Adani crisis continues to dominate headlines, but analysts say this could be a buying opportunity.

In particular, some are bullish on the construction sector and say the infrastructure push could benefit cement stocks.

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

Investors can consider playing the country’s infrastructure sector through the name of domestic cement, said Garre.

Bernstein was happy Semen UltraTech Kab – Garre company said it has the capacity to keep up with the many real estate projects coming up in India.

He said, “70% of cement demand comes from real estate, and 30% from infrastructure,” adding that when new properties are built, cement is needed from the first day of the project cycle.

This is unlike electrical equipment or circuits that are only needed in the third or fourth year of a construction project, he said.

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 closed at 7,123.05 shares of the US Dollar. The stock is near a 52-week intraday high, according to FactSet.

Government spending on infrastructure is increasing and “we think cement prices are increasing because of us [are going] to the season where construction activity can be highest,” Bhasin said.

FactSet data shows Ambuja Cements shares have fallen 34% year-to-date. Bhasin said the stock is a buy and a “good opportunity” despite the current market volatility.

The Adani Group has a 63.15% stake in Ambuja Cements, Refinitiv showed.

The price for Ambuja Cements is down “because it is under Adani’s umbrella,” said Praveen Jagwani, executive director at UTI International Singapore.

“This temporary setback is just a buying opportunity… We still think that UltraTech and Ambuja are doing very well on the cement side,” Bhasin said, adding that the push for infrastructure spending will lead to the names outperforming in the future. a quarter.

Morgan Stanley is bullish on the Indian industrial sector, analysts said in a note on February 1 after the budget announcement.

“As the Budget supports capex and job creation, we remain constructive on the strength of domestic demand,” the financial services firm said.

Finance Minister Nirmala Sitharaman announced during the annual budget last week that the country will increase infrastructure spending by 33% to 10 trillion rupees ($122.29 billion) in the next fiscal year. India’s fiscal year starts in April and ends in March next year.

India’s construction materials industry should see some upside from increased capital spending, but investors should be “careful” when picking cement stocks, Jagwani told CNBC.

India needs taller commercial buildings, roads and airports, but the country’s infrastructure sector is also “super unpredictable and risky,” Jagwani warned.

Investment returns will decline every year as infrastructure projects are delayed, Jagwani said, adding that this often happens in India.

Engineering companies focused on infrastructure and construction are also good buys, IIFL Securities said.

These include ABB India, Siemens Indiaand Larsen & Turbo.

Larsen & Turbo will come out with “higher double-digit margins, and the strongest order,” Bhasin said.

UTI International is also happy Berger PaintsJagwani said he has the “material” to see continued growth in sales and will benefit not only from new buildings that are built, but old ones that need maintenance.

“Paint is on the replacement market. People have to repaint their houses and apartments every few years because it rains and it’s so hot,” he said.

Shares, however, are down 4.5% year-to-date and near a 52-week intraday low of 527.6 rupees. Berger Paints was trading at around 555.45 rupees on Wednesday.

– CNBC’s Michael Bloom contributed to this report.