Infra stocks: Make a comeback, assist economy revival

After a massive fall in March 2020, the infrastructure stocks are now regaining focus and can be on the investor watch list hereafter. These stocks took a fall as bad as 46 per cent from levels on February 19 till March 23, as well as a 37 per cent fall in Sensex. Contrarily, their average returns stood at nearly 14 per cent during uptrend in the last two months.

This comeback is led by mid-cap players such as Sterling & Wilson Solar, Rail Vikas Nigam and Ircon International which rallied as much as 63 per cent, 52 per cent and 34 per cent respectively. The large-cap stocks such as L&T and GMR Infrastructure gave returns of 14 per cent and 8 per cent respectively.

The scrip fell sharply in March while the markets were witnessing huge volatility due to uncertainty regarding the lockdown, spread of Coronavirus and its subsequent impact. In the initial stage, there was no scope for particular estimation regarding its overall impact on the operational efficiency of the economy. At this point, with clarity on revenue loss in the current quarter, correction in valuation of companies can be made. Various plans of action implemented by the governments for economic recovery will assist in revival of the infrastructure companies as well.

The road construction segment anticipates execution work resuming shortly. This will aid companies in the recognition of revenues and avoid more delays in order execution. Moreover, order status of infra companies is judiciously positioned such as to be capitalized on in restarting economic activity. Mid-sized infrastructure companies such as Ashoka Buildcon, Sadbhav Engineering and KEC International have somewhat twice their annual revenues of order book in hand.

It is also a known fact that such industries will take pole position in economic recovery. Thus, investors must assess exposure to the industry as it is sustainable despite economic downturns and headwinds.