With so many infrastructure projects given why are infra shares down

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With so many infrastructure projects given why are infra shares down

One thing that is synonyms with the BJP government is the infrastructure boom. Be it roads, railways, airways or shipping, the party’s focus always on infrastructure.

BJP government always comes up with mega infrastructure plans and it is assumed that as soon as the party comes to power, the safest and most lucrative bet is Infra. Remember the good old days of Shri Atal Bihari Vajpayee? We saw the golden quadrilateral project, interlinking of rivers was talked about much (That is a MEGA project and would need some time to implement as it involves many stakeholders).

After a decade long policy paralysis of the Manmohan led UPA government, we have seen some of the best infra projects being tabled and many old ones which were defunct boosted. As per a statement by Nitin Gadkari, the construction of roads is up to 4 times faster compared to the previous government. The Internet is flooded with tons of news of how the infra sector is being revived by the present Modi government and the man of the match is none other than Nitin Gadkari.

But then why on earth are Indian infrastructure shares hitting rock bottom?

The reason is some of the good policies of this government. Let us understand them point by point:

Cleaning of Books

Thank Raghuram Rajan and Modi combination along with the anti corruption environment in the country, we have seen some very good steps by the RBI to clean the books of companies. The companies when were highly indebted were asked to start repaying the loans.

There are dozens of Mallyas in the stock market who have got easy loans during the previous government and now are unable to pay or do not intend to pay. But this was a tricky part. Most infra companies were in huge debt and since the RBI and government grip was tightening on them, investors started selling shares of such indebted companies.

Bureaucratic delays for projects during yesteryears:

It was customary that many infrastructure companies took a colossal amount of loans from various banks for their projects. But we have seen what was called a policy paralysis during UPA government. The projects were allotted to companies but then were delayed because of the complex bureaucratic structure of our country. Add to that many scams tainted the government and seemingly they were afraid to take on new projects. The UPA government especially UPA2 was a big mess in terms of governance and there was no way forward to manage things.

Demonetization:

Corruption has been a grease for many companies. Till babus and their netaji were paid a good amount, we always had those “work in progress” boards on roads/bridges for months or years. The infra and real estate industry used to work on cash (for a good portion). Demonetization is a good move for the long run but it hit some of the sectors badly in the short run and infra was the one of the worst hit.

Land Aquisition Bill (LAB) not turning up:

One of the first things that the Modi Government did after coming to power was the tabling of Land Aquisition Bill or LAB. With this bill, it would have been easier for the government and infra companies to procure land and start projects. But because of huge opposition from various parties and organizations, it was pulled back. This would have been a game changer project for the infra sector.

Once bitten twice shy

Many investors have burned their fingers in infra stocks over the past one decade. Some of the elite infra stocks of yesteryears are down by 90% (Check the stocks like Lanco, GVK Power, GMR infra, Punj Lloyd and many many others). This has led investors to shy away from such stocks, at least for a while.

 

                 What lies ahead for infra stocks?

Most value investors, as well as fund managers, are bullish on the infra stocks. The likes of Porinju are openly batting for the infrastructure stocks. As per them, infra sector will see a fantastic revival over a period of time. It will be worth to watch which of the Indian infra stocks will come out with flying colors. Read some of the infra bets by Porinju.