Infra stocks rise on the back of NMP optimism

Infrastructure stocks have seen some buying interest over the past two days, after the finance minister launched an ambitious plan worth Rs 6 trillion to monetise public infrastructure projects like power plants, roads and railways. The Nifty Infrastructure index rose 1.2 per cent over the last two days.

Adani Ports and SEZ, Hindustan Petroleum and ONGC rose 7.8 per cent, 5 per cent and 3.5 per cent respectively over two days. While cement companies like Ramco Cements, Ambuja Cements and Ultratech are up between 0.4 per cent and 2.5 per cent, shares of Larsen & Toubro rose 0.8 per cent during the same period.

The National Monetisation Plan (NMP), as the scheme is called, aims at monetising the government's brownfield infrastructure to fund greenfield ones. The central idea behind the scheme is to raise more revenues by monetising existing brownfield infrastructure assets and channel these additional revenues into building greenfield infrastructure.

Analysts said that since the pandemic began, kickstarting capital expenditure, especially on infrastructure, has been a priority for the government.

In a note, Teresa John, Research Analyst (Economist), Nirmal Bang, said, "Seasoned infrastructure investors are likely to benefit from the monetisation programme while domestic EPC players, power transmission companies, cement manufacturers etc will benefit from infrastructure spending by the government."

The gains for these companies, however, may not be immediate and will depend on the scheme's successful implementation. The government plans to monetise assets worth Rs 88,190 crore in FY22, Rs 162,422 crore in FY23, Rs 179,544 crore in FY24 and Rs 167,345 crore in FY25.

"It is a big change in the government's stance and positive development for infrastructure development. However, it all depends upon how the scheme pans out. We have to see the terms and conditions, revenue sharing and other details," said Siddhartha Khemka, head of retail research, Motilal Oswal Securities.

A key risk in the brownfield project, according to Nomura, is the volume of traffic.

"We also believe the appetite of the private sector will also depend on other factors like the duration of the concessions, institutional mechanism for dispute resolution, ability to operate the projects at commercial rates, regulatory and taxation issues, among others," said Sonal Varma, Nomura's chief economist for India and Asia ex-japan in a note with Aurodeep Nandi.

Kotak Institutional Equities, in its note, said greenfield capacities require enabling conditions for more extensive funding support from the private sector.