Investors stock up road construction shares

Investors are piling into shares of Indian road construction companies, betting that Saturday’s Union budget will contain measures to spur investment in infrastructure.

A custom Bloomberg index of nine roadbuilders is up 8.9 per cent this month, versus the 0.1 per cent drop in the Sensex. The Bloomberg index includes IRB Infrastructure Developers Ltd, Sadbhav Engineering Ltd and KNR Constructions Ltd, some of which struggled in 2019 as national elections caused the government to defer spending.

The rally is being led by belief that finance minister Nirmala Sitharaman will need to do more to revive economic growth from the lowest since 2008. She outlined $1.5 trillion in infrastructure investment last month, of which central and state governments will contribute at least 75 per cent.

“Last year the budget was very pro-farmer and there was not much for the infrastructure sector,” said Ankita Shah, a Mumbaibased analyst at Elara Securities India. “The sector has started to pick up only recently with the expectation that with the National Infrastructure Pipeline in place, there could be proper visibility on funding in the budget.”

The road sector has been facing headwinds after the National Highways Authority of India slowed its pace of awarding contracts due to a pile up of debt and delays in land acquisition. India awarded

3,211 kilometres of contracts in the first eight months of the financial year, just a third of its

10,000 km full-year target, official data show.

Even so, the order pipeline from the NHAI is robust at Rs 70,000 crore

($14 billion), indicating that awarding will pick up pace in the current quarter, Alok Deora, an analyst at Yes Securities, wrote earlier this month. Around 2,000 km of road projects are up for grabs, with another 6,000 km coming up in the year starting April 1, according to Deora.

Brickwork Ratings predicts policymakers will opt to widen the budget deficit and raise spending on infrastructure by about 30 per cent for the year starting April 1.Roadbuilders are also improving their finances by cutting debt. Sadbhav Engineering sold nine road assets to Indinfravit Trust last year. KNR Construction sold its Walayar road project to Singapore-based Cube Highways & Infrastructure Pte in January.

To be sure, there’s risk of some “mean reversion” in their share prices if the budget doesn’t live up to expectations, said Parikshit Kandpal, an analyst at HDFC Securities.