FPIs Bet­ting Big on Capex Cy­cle Up­turn

The Economic Times - - The Jaitley Interview -

Pre­dict­ing the tim­ing of a re­cov­ery in the In­dia’s cap­i­tal ex­pen­di­ture (capex) cy­cle is not easy given that such es­ti­mates by an­a­lysts in the past have been far off the mark ow­ing to slack in in­dus­trial de­mand. This time, how­ever, for­eign port­fo­lio in­vestors (FPIs) seem to be bet­ting big on an up­turn in the capex cy­cle if their re­cent in­vest­ment pat­tern is any in­di­ca­tion.

Out of the to­tal in­vest­ment by the FPIs in In­dian eq­ui­ties in the month to March, nearly one-third was de­ployed in in­dus­trial stocks and another 28% in fi­nance stocks, a proxy for pickup in cor­po­rate in­vest­ments, ac­cord­ing to data com­piled by ETIG from NSDL.

FPIs in­vested $710 mil­lion in in­dus­trial stocks in 2015. In the month to March, they have in­vested $431 mil­lion or nearly two-thirds of the pre­vi­ous year’s in­vest­ment. As a re­sult, stocks such as BHEL, ABB, L&T, Kal­pataru Power Trans­mis­sion have gained 10 to 30% since the end of Fe­bru­ary.

Though do­mes­tic funds in­vested in in­dus­trial stocks af­ter the new gov­ern­ment took reins in May 2014, FPIs re­mained un­der­weight on the sec­tor due to paucity of or­ders. The re­cent change in their stance can be at­trib­uted to at­trac­tive val­u­a­tions af­ter a sharp fall in Fe­bru­ary and ris­ing power equip­ment bids, which re­flects a re­viv­ing capex cy­cle af­ter five years.

New power gen­er­a­tion bids reached 20 gi­gawatts (GW) in FY16 for the first time in five years. Also, new or­ders for power gen­er­a­tion equip­ment grew by 27% to 12GW last fis­cal due to in­crease in or­ders from the state elec­tric­ity boards. Among the in­dus­trial stocks, BHEL re­ported 42% growth in the or­der flow in FY16, which sig­nals of a new power equip­ment capex.

ET In­tel­li­gence Group

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