ET Intelligence Group: The S&P BSE Infrastructure Index has underperformed the S&P BSE Sensex index in the past three and six months. Despite this, analysts have started re-rating select construction stocks. So, could there be triggers which can generate investors’ interest in construction stocks?Analysts point out two fundamental triggers. One, in the third quarter of this financial year, state governments will start awarding incremental projects. Second, analysts foresee increased interest of mutual funds in select construction stocks after Sebi’s directive on multi-cap schemes changing their allocation to mid- and small-caps to at least 25 per cent each in their portfolios.Besides, in recent months, construction companies have shown resilience. According to various analyst estimates, execution has improved to 70-90 per cent in the past three months from below 30 per cent. Also, labour availability has improved to 60-90 per cent. This is quite advantageous for well-placed construction companies with relatively light balance sheets and order books which give revenue visibility for the next three years.Liquidity issues, too, are being addressed. According to an estimate by Nomura, the government’s liquidity-easing measures have provided around Rs 34,600 crore to construction companies. The brokerage estimates an additional liquidity of Rs 2,500 crore to flow in the sector in the coming months.Brokerage Philip Capital said in its report, “We believe that the infrastructure sector is at the cusp of a big upcycle. The fundamentals are strong (balance sheets, order books), execution activity is picking up and order award momentum remains strong. To top it all, stocks are currently trading at abysmally inexpensive valuations and would deliver significant returns over the next 12-18 months akin to the run-up during the 2014-15 cycle in our opinion.”Analysts prefer companies such as KNR Constructions, PNC Infratech, Dilip Buildcon and Ashoka Buildcon given their strong order book, well-financed projects and relatively better balance sheets.
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