Railways, defence among 4 pockets that may emerge as money spinners

Market participants are convinced about strong economic growth, although numbers indicate otherwise, it said. “The market seems focused on the YoY recovery, which would be strong anyway, given a Covid-impacted base. However, three-year macro and micro data suggest that the growth is fairly muted,” it said.

The brokerage firm believes the Indian growth ‘narrative’ looks rather weak.

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Shah is also of the opinion that valuations are expensive but said it does not mean that investors cannot make money.

“Investors can still make money,” Shah said, listing the four sectors he is bullish on.

1. Railways

Railways could present an enormous opportunity with the capital expenditure (capex) for railways going up, Shah said. With dedicated freight corridor project being executed well and rolling out Vande Bharat trains is seen as a key positive for the railway segment, he said.

Decent growth visibility because of a likely increase in railway capital expenditure has also propped up sentiment for the sector, according to market participants.

Railway stocks have seen strong buying traction lately, largely due to tactical buying ahead of the Union Budget.

Shah believes railways is a better sector to invest in rather than roads, considering that road capex is tapering.

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2. Urban infrastructure

Besides railways, urban infrastructure is another hot pocket with several cities building metros, Shah pointed out.

By 2036, 600 million people will be living in urban cities in India, representing 40 percent of the population.

To meet the needs of its fast-growing urban population, India will need to invest $840 billion over the next 15 years or an average of $55 billion per annum, into urban infrastructure, as per a new World Bank report.

The report underlined the urgent need to leverage more private and commercial investments to meet emerging financial gaps.

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3. Renewable Power

Another emerging theme that Shah highlighted was renewable power, particularly wind and solar.

To combat climate change, several countries across the globe, especially India, are turning to renewables such as solar and wind.

Recently, Union Minister of Power and New and Renewable Energy RK Singh recently said to boost the production of renewable energy, India will have more than 65 percent power generation capacity from non-fossil fuels by 2030.

To encourage manufacturing activity in the sector, the government recently floated a proposal inviting bids worth Rs 19,500 crore from solar PV module manufacturers. The bids are for setting up manufacturing capacities for high-efficiency modules under the Production Linked Incentive (PLI) scheme.

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4. Defence

With the indigenisation of defence, there is a huge opportunity for defence manufacturers.

India is on track to meet its $5 billion exports target for defence equipment, driven by the government’s focus on increasing Indian exports, Prabhudas Lilladher said in a report in October.

Currently, a lot of foreign original equipment manufacturers depend on China and Russia for defence equipment, which provides huge opportunities to Indian manufacturers for boosting exports led by China plus one strategy, the brokerage firm added.

Healthy order books and the government’s push for localisation have steered many fund managers to believe that defence stocks are an attractive bet at this point in time.

Shares of defence companies have rallied significantly year to date.