Moneycontrol Pro Panorama | ​Thrust on infrastructure spending a boon for EPC companies

Dear Reader,

The Panorama newsletter is sent to Moneycontrol Pro subscribers on market days. It offers easy access to stories published on Moneycontrol Pro and gives a little extra by setting out a context or an event or trend that investors should keep track of.

Shares of Larsen & Toubro (L&T) made a new 52-week high in today’s (October 19th) trade. The company has emerged as the lowest bidder for constructing three buildings of the union government’s central vista project, reports PTI. Such project wins are not unusual for L&T. What is driving the optimism, however, is the prospect of fast-tracked infrastructure development in India.

Last week, Prime Minister Narendra Modi launched Gati Shakti, a digital platform that brings together 16 ministries for coordinated implementation of infrastructure projects. The main target is for the government to stimulate investment and shorten execution cycles through better planning. This can save costs and possibly aid infrastructure spending, though much depends on the co-operation of all stakeholders too, as we wrote recently.

The government's continued thrust on infrastructure spending and sharp execution can go a long way in reviving the sector. “Course correction can have a meaningful impact on volumes, pace of execution and working capital for EPC contractors,” analysts at Kotak Institutional Equities said in a note. EPC is engineering procurement and construction, a large business segment for L&T. The company is a bellwether for the EPC sector and if its prospects see sustained improvement, then the spillover effect will be felt by its peers as well. It could then kick start a virtuous cycle of growth in orders, execution and then investment by these companies. That cycle has been missing for some time now.

While there's some time to go before these early trends can solidify, L&T has an advantage of other businesses contributing to its performance and valuations. In particular, its investments in the IT sector are delivering. In the past week, its subsidiaries Larsen & Toubro Infotech and Mindtree have reported stellar financial results for the September quarter and analysts have upgraded their earnings forecasts for these stocks. Both companies have pointed to strong demand and are expected to clock impressive revenue growth rates in the current fiscal.

Their management commentary also corroborates the finding of industry studies. Research and advisory firm Gartner is projecting a faster rise in IT budgets next year, reports the Wall Street Journal. This is driving gains in other IT stocks as well. The Nifty IT index is the biggest gainer among the NSE sectoral indices at noon today.

As a majority shareholder, L&T is likely to benefit from superior growth rates at L&T Infotech and Mindtree. L&T Infotech is up 15 percent in Tuesday’s trade while Mindtree gained 14 percent from its results. “What differentiates L&T Infotech from most other IT companies is the strong growth despite a tall base in FY21,” analysts at ICICI Securities said in a note.

Investing insights from our research team include:

UltraTech: Impressive Q2, but tread carefully on valuation

Devyani International: Add taste to your portfolio

What else are we reading today?

Economic Recovery Tracker | Festive colours seen on weekly indicators

Passenger vehicles are in for a bumpy ride in spite of robust demand

Green Pivot | Glasgow meet must lift haze on climate finance

GuruSpeak | How to time a cycle perfectly to maximise returns: A tech entrepreneur-turned-investor explains

Listed companies driving a 3C rise in temperatures (republished from the FT)

Technical Picks: Infosys, Jubilant Foodworks, Bank of Baroda and Gujarat Gas (These are published every trading day before markets open and can be read on the app)

Also, check out MC30, our curated basket of 30 mutual fund schemes from the 1,660 available in the Indian market. This will help you build a solid mutual fund investments portfolio.

Thank you for subscribing to Moneycontrol Pro. Check out our offers page here for exclusive discounts on select brands and giveaways.We would love to hear from you. For any feedback on the product and suggestions please click here. We promise to read your responses although we might not be able to reply to each one individually.

R. Sree Ram
Moneycontrol Pro​