Best Infrastructure Stocks in India

Infrastructure is one of the fastest growing sectors in the Indian economy right now. The sector has especially taken off since the incumbent Narendra Modi government started laying emphasis on building roads and highways, renewable energy power plants, metro systems, a logistics ecosystem as well as constructing houses for the poor. 

Over the past decade, the central government as well as several state governments have been focussing on building thousands of kilometres of roads under the Bharatmala Pariyojana as well as a transport and logistics ecosystem under the Pradhan Mantri Gati Shakti Yojana initiative.

India is at the threshold of becoming a $4 trillion economy by March this year, and aspires to become a $10 trillion economy in the early 2030s. For that to happen, investment in the country’s infrastructure sector is imperative. 

On top of investing in the infrastructure space, the government has also been looking to capitalize a bunch of development financial institutions or DFIs in the country. Doing so will help usher in bigger institutional funding into the Indian economy in general and the infrastructure space in particular. 

But the government is not the only entity leading efforts at investing in the infrastructure space. Indian and foreign private equity firms as well as pension funds and sovereign wealth funds have been pouring monies into this space for a while now. They have been especially active in areas such as highways, renewable energy and power transmission, where they have been acquiring assets at sweet valuations that will likely translate into handsome returns later. 

For all of these reasons, infrastructure companies have been some of the most sought after investment bets that an investor looking to profit off the country’s stock market can consider. 

What are infrastructure stocks?

But first, what are infrastructure stocks? Put simply these are shares of companies that operate in domains such as engineering, procurement and construction, roads and highways, thermal energy and transmission, transportation and logistics including warehousing and such like.

Overview of top infrastructure stocks to invest in 2024

1. Larsen & Toubro Ltd. is a multinational conglomerate that specializes in offering engineering, procurement, and construction (EPC) solutions in both domestic and international markets for critical industries like infrastructure, hydrocarbon, power, process industries, and defense, as well as information technology.

2. GMR Infrastructure's primary activities include the development, upkeep, and management of airports; power generation; coal mining and exploration; highway development; special economic zone development; and construction business, which includes Engineering, Procurement, and Construction (EPC) contracting.

3.  IRB Infrastructure Developers Ltd. is an Indian firm that specializes in building and developing infrastructure, having a wealth of expertise in the road and highway industry. It is involved in other infrastructure-related commercial sectors, such as real estate, construction, airport development, and road maintenance.

4. Ircon International Limited (IRCON) was founded in 1976 and initially focused on building railroads. Since 1985, it has gradually expanded into an integrated engineering and construction PSU, with a focus on large-scale, highly technologically complex infrastructure projects across a range of industries, including highways and railways.

5. RITES Limited, a public sector organization that was founded in 1974, is a major force in India's transportation consulting and engineering sectors with a wide range of services. business is Indian Railways' sole export division; it supplies rolling stock to other countries (apart from Thailand, Malaysia, and Indonesia).

6. Optical fiber and optic fiber cable (OFC) 6 are supplied by HFCL Ltd (Himachal Futuristic Communications Limited), a diversified telecom infrastructure enabler with active interests in system integration, telecom infrastructure development, and the production of high-end telecom equipment.

7. EIL is a CPSU that operates under the administrative supervision of MoPNG and has majority ownership of the GoI. In addition to offering turnkey contracts that cover the whole spectrum of project services, including project conception, planning, design, engineering, procurement, construction, and commissioning in accordance with client requirements, EIL also offers consulting and engineering services.

8.  In the power infrastructure sector, Techno Electric & Engineering Company Ltd. (TEECL) offers asset ownership, operations, and maintenance services in addition to engineering, procurement, and construction (EPC) services. 

9.  The Ministry of Housing and Urban Affairs oversees NBCC (India) Limited, a Navratna Enterprise of the Government of India. The company is divided into three main business segments: real estate, engineering procurement and construction, and project management consulting.

10.  KEC International is a significant worldwide EPC provider for infrastructure. It is present in the following verticals: solar, oil and gas pipelines, cables, civil engineering, urban infrastructure, railroads, and power transmission and distribution. It is the RPG Group's main company.
 

Future of Infrastructure Sector in India

India wants to become an major economic superpower. Only the infrastructure sector as a major growth engine can fulfil this dream. Developing the infrastructure space can lead to a domino effect in the economy, 

The Indian government is looking to ramp up its capital expenditure. India is said to become the world's third-largest construction market. Various schemes launched by the government promise huge opportunities for the companies involved in infrastructure-related activities. Under the National Infrastructure Pipeline, Housing For All 100-PM GatiShakti Cargo Terminals, and Smart Cities Project are some of the ways that provide the impetus for the growth of infrastructure in India. 

Types of Infrastructure Systems 

Infrastructure systems can be divided into three broad categories

Soft Infrastructure — This category is less capital intensive and ensures smooth and obstacle-free functioning of the country. It includes financial institutions, law enforcement, governmental systems, education systems, etc.
 
Hard Infrastructure — This includes physical systems that allow businesses to run an efficient industrialised and modern nation. Highways, roadways, etc come under hard infrastructure. 
 
Critical Infrastructure — This segment is necessary for the basic functioning of a country. This includes companies and businesses operating in energy, telecommunication, electricity, agriculture, public health, etc. 

How to Select the Best Infra Stocks to Invest in 2024? 

The best way to evaluate infrastructure stocks is by looking at their quantitative and qualitative dimensions. 
 
An investor should look for capital appreciation as well as net income. Further, when looking at different physical assets, you should consider the factors such as growth prospects, the market position of the firm, and the contract or regulatory framework. 

Management: As an investor, you should also closely observe the capital structure, strategic direction, corporate governance issues, and operational quality of the entire management of the company. Once you analyze the company's quality and its asset level, you should focus on the overall performance and quality of the business. 

Order Execution: It is a key factor that determines the quality of business and the better the quality, the higher will be the evaluation. However, keep in mind that a fat order book doesn't mean anything if the company is not able to run the projects in a fast and efficient way. Most projects now come with deadlines and incur penalties in case of late delivery. 

Financial Stability: Next, the consolidated statements of a company including its profit and loss data, balance sheet, cash flow statement, etc. also need to be analyzed to determine the quality and performance of the infrastructure company. The fundamental ratios to analyze include debt-equity ratio, book-to-sales ratio, price-to-book ratio, asset management ratio, and a few others. 

Debt to Equity ratio: As we have discussed above, infrastructure companies are capital intensive, you will find their debt to be slightly high on their balance sheets. Here, you need to ascertain whether the company has sufficient returns and profits concerning the debt it raised. Besides, you should also take into account the interest cover ratio, which can be easily calculated by the following formula.

Also check: 5 Best Construction Stocks to buy in 2024

How to Invest in the Top Infrastructure Stocks in India

To invest in the top infrastructure stocks India, start by researching companies with strong fundamentals in sectors like construction, energy, transportation, and urban development. Look for established companies with a history of solid financial performance, robust order books, and government contracts. Consider investing through diversified mutual funds or exchange-traded funds (ETFs) focused on infrastructure. Regularly monitor industry trends, government policies, and project announcements, as these factors impact stock prices. Diversify your portfolio to manage risks, and consult a financial advisor for personalized guidance before making any investment decisions.

Things to remember before Investing in Infrastructure stocks

Here’s a concise guide on things to remember before investing in infrastructure stocks India:

1. Market Demand

•    Infrastructure stocks India often benefit from growing economies. Assess the economic outlook of the region or country.

•    Increasing urbanization can drive demand for infrastructure development.

2. Government Policies

•    Understand the regulatory environment affecting infrastructure projects.

•    Look at government budgets and spending on infrastructure projects, as they can impact stock performance.

3. Company Fundamentals

•    Check the company’s financial statements for stability, profitability, and debt levels.
•    Evaluate the company’s current and future projects for potential revenue and growth.

4. Sector Specific Risks

•    Infrastructure projects are often affected by political stability and policy changes.
•    Infrastructure investments can be cyclical and sensitive to economic downturns.

5. Competitive Position

•    Analyze the company’s position in the market relative to its competitors.
•    Assess the company’s capability to adapt and innovate in infrastructure technologies.

6. Long Term Investment

•    Infrastructure investments generally have long term horizons. Be prepared for a longer holding period.
•    Look at potential dividend yields as infrastructure stocks india can provide steady income.

By considering these factors, you can make a more informed decision when investing in infrastructure stocks india.
 

Conclusion

Infrastructure companies play a very important role in defining the growth and development of our country. This accounts for the increasing popularity of infrastructure stocks. By investing in the right infrastructure stocks, you can not only gain higher returns over the long term but also secure your financial future to a great extent. We hope this information on infrastructure investment helps you.