X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Indian Stock Market News, Equity Market and Sensex Today in India | Equitymaster
Investing in India? Get Equitymaster Research  
Is infra story taking a U turn? 
(Tue, 1 Oct Pre-Open) 
 
Government organizations are prone to missing and revising investment targets every now and then. At times there are unforeseen instances which might trigger a downward revision. However, the extent to which the target has been missed tells us whether it was realistic or just an over optimistic number. Fathom this. In the last fiscal year, the National Highways Authority of India (NHAI) planned to award 9,500 kms of road projects. However, only 1,116 kms of road projects were awarded. In other words, only 11% of the original target was met! This tells us how grossly miscalculated the original target was.

Various hurdles relating to land acquisition, liquidity and environmental clearances acted as impediment to the original target. However, apart from finance all other hurdles were parented by the government itself. Both land acquisition and environmental clearances are with the government. Lack of co-ordination amongst ministries and the intent to deliver are the main reasons why the road project award activity has come to a standstill.

However, what is more worrying is that government is still coming out with optimistic targets for future despite nothing improving on the ground. In FY14, the government is targeting to award 3,000 kms of road projects. But till date, it has awarded only 479 kms! Thus, government has achieved just 16% of its target in the first 6 months of this fiscal.

But it seems there is a ray of hope this year with government planning to award road projects worth Rs 170 bn in the next few weeks.

However, the moot question is whether the plan will materialize or will it just remain another number in the government's books? Taking a look at the current operating environment we feel that even if the projects are awarded execution will be a big challenge. Considering land acquisition is proving to be major hurdle these days most lenders are demanding 100% of land possession before sanctioning loans. Also, most banks are reaching their exposure limits to infrastructure sector. This means liquidity is hard to come by in the sector. Add to that the woes pertaining to approvals and environmental clearances for such projects. Despite project approvals, bureaucracy, corruption and ongoing regulatory interference can threaten execution of the projects.

However, the very fact that government is showing some willingness to put project approvals on fast track may coax lenders to fund infrastructure projects. Presently, bankers are worried of their loans turning into NPAs due poor track record in execution.

The road sector has suffered a lot in the last 3-4 years due to bureaucratic mess. If the project award activity gains momentum and execution speeds up, the sector will get the much needed push. This would mean that the India infra story may take a U turn for the good. We can only keep our fingers crossed.

For information on how to pick stocks that have the potential to deliver big returns, download our special report now!

View all commentaries | Archives  RSS
Read the latest Market Commentary
 
BSE-30
 

 
Go
 

Equitymaster requests your view! Post a comment on "Is infra story taking a U turn?". Click here!

  
 

Become A Smarter Investor In
Just 5 Minutes

Multibagger Stocks Guide 2017
Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
We will never sell or rent your email id.
Please read our Terms

S&P BSE REALTY


Jul 28, 2017 02:22 PM

MARKET STATS