Kshitij Anand Moneycontrol News
Indian market is trading near its life highs and a similar 20-percent kind of upmove seen in the first half of 2017 looks unlikely in the second half, but there will be plenty of stock-specific action.
One way of picking stocks is to spot sectors which are likely to see organic growth due to reforms or policies introduced by the government which could have a bearing on individual stocks in the sector.
Two sectors which have come under the spotlight are autos and railway-related stocks. With PM Modi’s vision of making every Indian car electric by 2030, stocks of automakers and ancillary companies which produce electric parts or vehicles are likely to take off.
The government has advanced the deadline for completing the 508-km long Mumbai-Ahmedabad high-speed bullet train corridor by one year to 2022.
“With Modi in the driver’s seat, politically that is, bullet trains are likely to become reality as expected. Since the Ahmedabad- Mumbai bullet train is Modi’s pet project and since it is backed financially and technologically by the Japanese, the project is likely to overcome all hurdles,” Dr VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services told Moneycontrol.
The biggest challenge continues to be battery-charging infrastructure. The cost is no more a challenge if falling battery prices are anything to go by.
"Looking at the power industry we feel India will be a power surplus economy then the only issue will be infrastructure which India has to work on," Ritesh Ashar – Chief Strategy Officer, KIFS Trade Capital
"The bullet train project is expected to not only give a fresh outlook to the railways but also give boost to economy as a whole Texmaco Rail, Bharat Heavy Electricals Ltd (BHEL)," he said.
The government has shown strong intent on having only electric vehicles in India by 2030, and many companies have started their laying down plans to introduce vehicles by 2019, it might not be a smooth ride for auto companies.
“Globally and in India, Electric Vehicles technology is at a very nascent stage and is expected to evolve in the coming years. While most of the companies have plans to introduce electric vehicles in the coming years, there are multiple issues that need to be sorted out,” Sanjeev Zarbade, Vice President-PCG Research, Kotak Securities told Moneycontrol.
“Firstly, the current cost of the electric vehicle is higher than a petrol/diesel vehicle which is expected to come down going ahead with mass production. Also, charging infrastructure will be key issues that need to be taken care,” he said. Zarbade expects the electric vehicle to start getting launched from 2019 onwards.
Indian economy is growing but the latest GDP print which shows a figure of 5.7 percent which was largely weighed down by demonetisation and rollout of goods and services tax (GST).
India's GDP or gross domestic product grew 5.7 percent on a year-on-year basis during the April-June period (Q1), government data showed. But, it looks like it is not unlikely to fall from the current level and touch 8 percent mark by 2018.
“We expect GDP growth of 7.1 percent year-on-year and gross value added (GVA) growth of 6.7 percent in 2017-18 (year ending March 2018),” Nomura said in a report.
"We are pretty sure that India would able to achieve the objective of EV and bullet trains. The introduction of EV and bullet trains is expected to push economic growth through robust transport infrastructure," D.K. Aggarwal, Chairman and Managing Director, SMC Investments and Advisors told Moneycontrol.
"Sometimes hurdles aren’t really hurdles at all. They are welcome challenges and tests and we hope for a great future. With the government focusing on the promotion of electric vehicles and speeding up the economy with the bullet train, the automobile and ancillary companies would come up with models based on customer preference," he said.
We have collated a list of ten stocks which are likely to benefit the most from govt policies:
JBM Auto has more than doubled investors’ wealth so far in the year 2017 and looks ripe for further upside. “From Electric Vehicles, we expect all the OEM’s (original equipment manufacturer) to launch an electric vehicle in coming years,” said Zarbade of Kotak Securities.
“In the auto ancillary space, various companies will have changed their business model. JBM Auto can benefit from demand for electric buses. It has formed a joint venture with Polish firm Solaris Bus & Coach S.A. to manufacture electric buses in India,” he said.
L&T:
Order flow for the quarter was down 11 percent on a YoY basis to Rs 264 billion and order book stood at Rs 2.6trn up 2 percent on a YoY basis. The domestic inflow for Q1FY18 was up 12.1 percent YoY while international inflow for Q1FY18 was down 40 percent YoY.
Domestic order inflow growth was 12 percent, mainly contributed by Power T&D, Water and MMH businesses. The Company has maintained its guidance of 12 percent sales growth, 12-14 percent order inflow growth and 25bps margin improvement in FY18.
Prabhudas Lilladher maintains a buy with a target price of Rs 1328. The stock is at a core PER of 15.4x FY19E earnings. It continues to be the best play in the Indian infrastructure space, given its strong business model, diverse skill sets, strong execution capabilities and relatively healthy/large balance sheet.
Analyst: Dinesh Rohira, Founder & CEO, 5nance.com:
Environment-friendly Electric vehicles and high-speed bullet trains are the latest buzzwords on everyone’s mind after the Modi-Abe meet, we bring forward to you a list of beneficiaries of this boom.
For those investors who want to take exposure to this opportunity, we have identified the following stocks which have the potential to give you the desired returns:
EV makers
Maruti Suzuki, Mahindra & Mahindra, Tata Motors:
Auto-makers will pounce upon the opportunity to position themselves as leading EV makers. M&M is the first player to launch fully electric cars in India and will certainly gain with the EV boom.
Maruti Suzuki is awaiting policy roadmap and consumer preference for EVs to start its EV production. Suzuki Motor has also decided to set up lithium-ion battery plant in Gujarat with Toshiba Corporation and Denso.
Whereas, Tata Motors is all set to reveal its first Electric Vehicle (EV) for the Indian market this year.
Ashok Leyland – Ashok Leyland introduced the first 'Made in India' electric bus “Circuit” last year. It has also formed a strategic alliance with SUN Mobility to develop electric mobility solutions.
Battery Makers:
BHEL is finalising a memorandum of understanding with The Indian Space Research Organisation (ISRO) to help develop low-cost lithium-ion batteries for electric vehicles
IOCL:
Indian Oil Corporation (IOC), the nation's biggest fuel supplier, is developing batteries and other technology for energy storage applications. According to Economic Times, while IOC is mainly focusing on lead-acid, it is also working on lithium-ion battery chemistries
Exide Industries, Amara Raja Batteries:
Exide Industries and Sydney-based Ecoult are also setting up a new manufacturing plant in East India for Ecoult's lead-acid hybrid product, named UltraBattery.
Ecoult recently secured funding from the Australian Renewable Energy Agency (ARENA) partly to help its expansion to India. Amara Raja Batteries is looking to enter electric car batteries space in due course.
Battery component makers
Graphite is the major component in batteries, Graphite Industries and HEG Ltd. should gain from this rush.
Hindalco is gaining confidence from rising demand for automotive aluminium coming from OEMs - which are gradually switching to aluminium and steel to make vehicles lighter - and from manufacturers of electric vehicles (EVs)
MOIL:
Manganese is a critical component in Nickel-Manganese-Cobalt (NMC) Li-ion batteries used in electric vehicles and hence MOIL will gain from this EV boom.
Bullet train infra providers
NBCC, L&T:
More railway stations will be required once bullet train will be operational. State owned-construction firm NBCC has recently got order to develop 10 stations. There are reports that Railways may get the firm to develop 40 more stations.
Bullet Train support industries
ABB India, Alstom, Siemens, Hind. Rectifiers:
These companies will benefit from bullet trains as they manufacture high-speed rail traction and electrification systems.
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