Morgan Stanley says these stocks are riding high on India’s capex boom

Increased infrastructure spending is expected to dampen inflation and boost corporate profitability. According to analysts at Morgan Stanley, key stocks poised to benefit from this trend include L&T, NTPC, Titagarh Rail Systems, and Ultratech Cement.

India's infrastructure and capex boom through projects like the PM Gati Shakti is creating opportunities in the stock market as well, Morgan Stanley said, listing out key names that it is bullish on.

Analysts at Morgan Stanley have cited Larsen & Toubro, NTPC, Titagarh Rail Systems and Ultratech Cement as among the key names benefitting from the government spend on infrastructure. The capex boom is also expected to dampen inflation, and boost corporate profitability, according to the analysts.

A Morgan Stanley note informed investors that the momentum that India's infrastructure development has seen over the last decade is projected to continue. Analysts expect infrastructure investments to rise from 5.3 percent of GDP in FY24 to 6.5 percent of GDP by FY29, reflecting a robust 15.3 percent compound annual growth rate (CAGR). This increase will result in cumulative spending of approximately $1.45 trillion over the next five years, the note said.

This surge in infrastructure investment is expected to enhance overall investment rate and foster a period of sustained, high, productive growth.

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Beneficiaries of India's infra push

1. Larsen & Toubro (L&T)

According to Morgan Stanley, increased government spend on infrastructure projects would likely benefit L&T significantly. Additionally, a moderation in steel and other material prices could improve the company’s cost structure.

An overall improvement in the economy, leading to higher-than-anticipated private capex, would also be a positive driver for L&T.

However, a slowdown in government-led infrastructure capex is a key risk for the company's prospects, so is a slowdown in the execution cycle which could hamper project completion and profitability. Geopolitical risks could lead to slower execution of projects, and a sharp increase in material costs could squeeze margins.

2. NTPC

According to Morgan Stanley, the potential upside for NTPC includes faster capacity addition driven by stronger power demand and improving health of State Electricity Boards (SEBs), value-accretive acquisitions, and value unlocking in subsidiaries.

On the downside, risks involve delays in commissioning, fixed cost under-recovery due to coal or machine availability issues, investments in non-core businesses, and value-decreasing acquisitions.

3. Titagarh Rail Systems

For Titagarh Rail Systems, Morgan Stanley's base case is derived from a target P/E of 35x for September 2026 earnings. This multiple is considered fair, given strong earnings visibility from a large backlog and improving return ratios, which are the best among peers, the foreign brokerage said.

An improvement in freight margins and a faster-than-expected ramp-up in passenger coach execution are significant positive drivers for Titagarh. Additionally, an acceleration in passenger segment margins beyond expectations would further enhance the company's financial performance, said analysts.

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However, supply chain issues could affect the freight business and hamper execution. A slowdown or delay in wagon tendering and ordering for passenger coaches could hurt operating margins.

Additionally, delayed execution of contractual obligations could lead to liquidated damages, which would negatively affect the company's financial health.

4. Ultratech Cement

Morgan Stanley believes that despite near-term uncertainties, the medium-term demand visibility for Ultratech Cement remains strong. The brokerage note has identified several factors that could drive the stock's performance, including continued demand and a sharp decline in input prices.

However, a weaker-than-expected demand offtake is possible if the macroeconomic situation worsens, and a rise in input prices could increase overall costs without corresponding higher realizations, thus denting company's profitability.

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