As reported by LiveMint, BofA Securities Inc. has said that India is at a multi-year capex cycle whilst the US infrastructure stimulus is witnessing a positive. The country’s multi-year capex cycle will be similar to that seen in FY03-12.
Furthermore, it expects $356 billion orders to be awarded over two years with a rise of 14 and 7 per cent in FY22 and FY23 respectively by mainly government capex.
The US-based firm noted, “We expect private sector and PSUs to accelerate capex cycle growth from FY24 onwards. Government opening up large monopolies within gas/power distribution, railways, mining, would mainly drive private capex.”
It continued saying that most PSUs (public sector undertakings) were cash rich but re-invented their business models towards new growth areas resulting in the fall of PSUs’ share of orders i.e. 13 per cent over FY22-23 seemed transitory.
The $1 trillion US infrastructure stimulus would most possibly provide opportunities to capital good players like ABB India Ltd., Siemens Ltd. as well as Cummins India for the export of products considering their relatively low utilizations standing at 50 to 85 per cent and the ambition for expanding exports along with receiving support from their American or European parents. It could offer growth for EPC (engineering, procurement and construction) companies such as L&T which has expanded its US reach.
“Our analysis of previous cycles suggest margins, working capital cycle, return on equity (RoE) and earnings growth are highly co-related for this cyclical sector. RoEs and margins for the sector are currently close to multi-year lows while working capital close to multi-year highs,” added BofA.
Due to the acceleration of capex cycle, it has observed the scope for valuation expansion.
