Top picks: 2 stocks to buy in infrastructure sector. Brokerage recommendations

The 25% year-on-year (YoY) increase in allocation towards road outlay for the current fiscal year gives new hope for growth in the road space in FY24, said brokerage and research firm Nuvama Research, adding that companies with healthy balance sheets such as PNC Infratech and KNR Constructions remain its top picks in the Infrastructure sector.

“The NHAI (National Highway Authority of India) awards were healthy for a second year in a row in FY22. However, intense competition in the roads space (although now likely to reverse, somewhat due to tightening of pre-qualification norms), volatility in commodity prices and a turn in the interest rate cycle are keeping investors on tenterhooks. At the same time, the government’s thrust on roads (with 25% YoY increase in outlay for road capex) and improvement in credit availability from banks provide a ray of hope,” the note stated.

Given the backdrop, the brokerage argues that road developers must work on segmental diversification. It prefers road companies with robust balance sheets such as PNC Infratech and KNR Constructions, suggesting it as its top picks in the sector, and has Buy ratings on these two infra stocks. 

In a major relief to the road sector, capex revived in the FY24 budget, up 25% YoY compared with FY23RE. The pace of road construction (NHAI + MoRTH) also picked up in January 2023 with 1,029 km of roads constructed (versus 1,008 km in December 2022 and 849 km in January 2022); out of this, the NHAI constructed 504 km (278 km in December). Road awarding zoomed 65% led by NHAI accelerating its pace of awarding. The entire award during the month was from NHAI. The share of listed companies in YTD award-wins has improved lately, but remains low, Nuvama highlighted.

The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.