What are experts betting on in the infra space?

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What are experts betting on in the infra space?

In an interview with CNBC-TV18, Shailesh Kanani, Research Analyst, Angel Broking and Naveen Jain of Indiabulls Securities, speak about the infrastructure sector and give their outlook going forward.

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Excerpts from Markets Midday on CNBC-TV18 Watch the full show » ALSO READ See what other experts are saying about markets See what FIIs are saying about the markets See what Udayan Mukherjee is saying about the markets

The infrastructure index peaked off in mid July. After that, the market hasn't seen those stocks go the way they did before the results came in.

In an interview with CNBC-TV18, Shailesh Kanani, Research Analyst, Angel Broking and Naveen Jain, Indiabulls Securities, speak about the sector and give their outlook going forward.

Jain remians positive on construction companies including Nagarjuna Construction and Simplex Infrastructure  in the mid-cap space as he sees execution picking up going forward. "We have an 'outperform' rating on IL&FS Transportation Network ."

Kanani agrees and adds that the stocks have underperformed. "That (underperformance) we think is kind of a buying opportunity for investors because right now most of the stocks are available on single PE digit. With execution expected to be better in the second half and also the strong quarters (Q3 and Q4) are coming, we expect the sector to perform well."

Kanani's top picks in the sector are IVRCL Infrastructure , Nagarjuna Construction and Patel Engineering .

Here is the verbatim transcript of their interview with CNBC-TV18's Latha Venkatesh and Anuj Singhal. Also watch the accompanying video.

Q: What caused this July fall off in the infrastructure index, the fall from grace and is this a level where you would start looking at stocks to pick?

Jain: The execution did not come up to the levels to what people were expecting, so the results were disappointing in the Q1. Probably even the Q2 will not be that great because monsoon has kicked in and typically Q2 is not the best quarter for the construction or infrastructure companies. But, going forward, we will see execution picking up because if you look at the order book, it is at its peak level for most of the companies and it's a matter of time before the execution starts picking up. So, we are quite positive on the construction companies.

Q: What is your view, we have seen big fall in some of the infrastructure stocks? Admittedly, Q1 numbers didn't look good for this particular sector, but that is seen as a bit of a sector, which has back ended growth. What is your view on that?

Kanani: I agree with Naveen that the execution is expected to pick-up in the second half. Apart from the order book position, what he mentioned, I think another reason for the execution didn't happen in the first half is that the order book inflow was very back ended in the FY10. If you see Q4 of FY10 contributed nearly 40-45% of the overall order inflow for the full year. So that's the reason we are saying the order book conversion to revenue would happen only in the second half.

Apart from that, what has happened in recent time since mid-July till the results came out, numbers were not as per expectations, so that's the reason stocks have underperformed. That we think is kind of a buying opportunity for the investors because right now most of the stocks are available on single PE digit. With execution expected to be better in the second half and also the strong quarters are coming i.e. Q3 and Q4, we expect the sector to perform well.

Q: What would be your top pick in this sector because we have seen quite a bit of correction in these stocks since the Q1 numbers came? Which two-three stocks do you think are best positioned now?

Jain: Our preferred picks on the midcap construction space is Nagarjuna Constructions and Simplex Infrastructures. The order book is very strong, these are well diversified companies in terms of the areas that they operate in, in terms of segments that they are present in. We expect the execution to pick-up going forward which will drive the stock also.