IF WE HAD to pick the star sector of the current edition of ET500, we would go out on a limb and say that it has to be infrastructure. The sector has seen growth like never before and given India's woeful infrastructure, it is likely to continue to be one of the fastest growing sectors in the years to come. The sector, which received very little attention in earlier decades, is now in focus and companies in this space are reaping the benefits.

Capital goods companies such as Bharat Heavy Electricals (Bhel), Larsen & Toubro (L&T); telecom companies like Bharti Airtel, Reliance Communications; construction companies such as Punj Lloyd, DLF; and power companies such as NTPC, Reliance Energy and Tata Power, have all gained sharply in the past four years, when the current upturn in the economic cycle began.

The growing importance of these companies shows up in the ET500 listing as well. Infrastructure companies - power, engineering, construction, real estate and telecom - are among the fastest climbers in ET500. The share of power sector's m-cap in the aggregate m-cap of ET500 companies in the current edition has gone up to 4.5% from 1.9% in the May '04 edition. Its share in the total profit of ET500 companies has also risen to 4.6% from 1.4%, even though its sales share is low at 2.5%.

The share of capital goods in the ET500 m-cap has also risen to 8.5% from 3.5% earlier and the profit share is up from 2.2% to 4.8%. In fact, the m-cap of companies in this sector has grown much faster than their share in sales, indicating their growth potential as perceived by the stock market.

The current ET500 list contains 30 capital goods companies, against less than 20 companies in the previous edition. Similarly, there are 12 construction companies in this list, making it one of the best represented sectors in ET500.

It will be hard to talk of infrastructure and ignore telecom - a sector that has seen a dream run over the past few years. The share of telecom companies in the total m-cap of ET500 companies has risen to 8.8% in the current edition from 3.8% in the May '04 ET500 edition. During the corresponding period, the share of telecom companies in the net profit of ET500 companies has gone up to 3.6% from 1.6%. It is a classic case study on how a deregulated and conducive policy environment can help a sector grow. The growth is evident from the subscription figures for telecom services based on GSM and CDMA. While the subscriber base for GSM crossed 14 crore in July '07, against 32 lakh in January '01, for CDMA, the base has now crossed five crore against around one lakh in January '01.

Lack of large capital investment and a long gestation period had hampered infrastructure companies. This meant that barring a few private players, most enterprises in this space were government-owned. But after the opening up of the economy, it has become easier for firms to access capital. This, coupled with policy changes, means that private players have now entered the space. Gammon, Hindustan Construction and Nagarjuna Construction have seen significant increase in their revenues, through implementation of projects under national highways and other programmes via public-private partnership projects. The construction sector has also gained immensely from the housing and real estate boom. Increasing business opportunity has led to a rise in demand for housing and commercial space, with IT and related services, being the other trigger. This has been aided by higher consumer spending, leading to greater demand for malls and entertainment centres. Projections for the sector are even more robust on the back of urbanisation and rising incomes. The capital goods sector has also benefited due to infrastructure investment and industrial capacity expansion. The power sector alone may see an investment of Rs 40,000 crore per year in generation, even at a modest success ratio of 50% of planned capacity addition. Around 70% of this will go to engineering and construction companies. The performance of the engineering sector is evident from the continued rise in order books, on top of sales growth.

Bhel had an order backlog of Rs 62,400 crore as of end June '07 and bagged three more orders in August. It has been running an order backlog equal to three years of sales. L&T has also seen a jump in order backlog, which is Rs 40,000 crore, a 45% rise over last year. Apart from domestic demand growth, a substantial rise in exports is helping to generate volumes and reap the benefits of economies of scale. The infrastructure sector has come a long way in the past few years. Now that the economy has gained resilience and is able to withstand shocks, the future will be more exciting. And we'll be there to keep you posted on the action. Watch this space…

TOP