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

As the list above makes it evident, some of India’s best infrastructure companies have delivered some of the best results on an absolute basis over the past five years. 

These include behemoths like Larsen & Tourbo as well as smaller ones like Techno Electric Engineering, which have delivered multibagger returns for their investors and have left them significantly wealthier than when they would have invested.  

Talking about some of the names on our list, L&T is one of the best known, oldest and well established infrastructure companies in India. It is a formidable name in domains such as construction, metro, rail etc. 

L&T has executed some of the most significant projects in India and has a huge pipeline of projects, perhaps larger than any other construction company in the country. This makes it a safe bet for the long term as its earning visibility is virtually guaranteed. 

Another important company on our list is GMR Airports Infrastructure which has delivered a return of more than 423% over the past five years. 

GMR Airports is a part of the diversified infrastructure conglomerate, the GMR Group which also has interests in areas such as power and ports, and manages airports in Delhi, Hyderabad, Goa, Visakhapatnam and Bidar. It also manages some in other countries including the Philippines, Greece as well as Indonesia.

Yet another stock that investors may want to look at in the infrastructure sector is KEC International, an EPC contractor, which is a part of the RPG Group of companies. The company manages businesses across verticals such as power transmission, power, cables, railways, water and telecom.

It has a very healthy order book that is going to keep it in business for the next several years and has also been consistently generating profits over the past several years. Its main verticals of business include power transmission and distribution, followed by railways and civil construction. 

Other companies on our list include two railway public sector enterprises IRCON International as well as RITES. 

IRCON was set up in 1976 as a railway construction company and has since transformed into an integrated engineering and construction player. Similarly, RITES, founded in 1974 is now a significant player in the consultancy space for the transportation and engineering sector. 

The three decade old GR Infraprojects in designing and executing diverse road and highway projects across India. It specializes in  civil construction ventures. 

HFCL, earlier known as Himachal Futuristic Communications Ltd, is a telecom infrastructure company engaged in developing telecom infrastructure, integration of systems, as well as the manufacturing and supply of advanced telecom equipment, optical fiber, and optic fiber cables (OFC).

NBCC is a project management consultancy company for the construction sector. Apart from its consultancy business, it is also an infrastructure developer and also runs an EPC vertical.

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

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.