Morgan Stanley playing India’s infra boom with these 4 stocks

Foreign broking firm Morgan Stanley, which is expecting a 15.3% CAGR in India’s infrastructure investments resulting in cumulative spending of $1.45 trillion over the next five years, is playing the theme with four stocks — Larsen & Toubro (L&T), NTPC, Titagarh Rail Systems, and Ultratech Cement.

“We expect India’s infrastructure investment to steadily increase from 5.3% of GDP in F24 to 6.5% of GDP by F29. Indeed, this implies that infrastructure investments are expected to register a strong 15.3% CAGR, resulting in cumulative spending of US$1.45tn over the next five years. In our view, this will help to lift the investment rate, leading to a sustained period of high productive growth,” Morgan Stanley analysts wrote in a note.

The implementation of PM Gati Shakti (PMGS) should drive faster execution of infra projects while reducing cost overruns and also unleash productivity gains, leading to higher efficiency.

“Investors remain bullish on India’s structural economic strength, as illustrated by a pickup in supply-side reforms and improving macro stability, bolstering our view of a new profit cycle that is firmly underway. For an economy that is likely to grow at a nominal rate of 10% per annum, if the profit share in GDP goes to a new peak of, say, 8% over the next four to five years, it gives an earnings CAGR of over 20% for the broad market. Indeed, higher profits feed into real GDP growth and back into profits, so a virtuous cycle unfolds with concomitant positive impact on share prices. As we experienced during the 2003-08 cycle, the Street may underestimate this profit boom,” the report said.

Here’s what Morgan Stanley says on the four infra stocks:

L&T

Skew reflects improving macro conditions, strong government thrust on capex and pick up in the private capex cycle. NTPCNTPC’s thermal business is valued at 2x H1F27e P/B, renewable business at 12x F29 EV/EBITDA and discounted back to H1F27, pumped storage business valued at 2x in-line with the regulated business multiples. “We assume 3GW commissioning by F31. Valuations are discounted back to H1F27,” it said.

Titagarh Rail

Morgan Stanley’s base case, derived from a target P/E of 35x to Sept-26 earnings, is based on strong earnings visibility (large backlog) and improving return ratios (the best amongst peers).

Ultratech Cement

Despite near-term uncertainties, the medium-term demand visibility remains intact.

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