Infrastructure is definitely what you should place your bets on- an infrastructure-oriented good mutual fund would be better (this includes exposure to infrastructure and related stocks).
The story behind a boost in infrastructure as a sector.
While RBI has not yet disclosed the figures related to demonetization, it is not tough to guess that the banks are now flushed with liquidity. At the same time, RBI has shifted its stance from accommodative to neutral. Interest rates have been lowered significantly, which translates to cheaper borrowing costs for infrastructure as a sector. We expect banks to use the liquidity to lend to government-financed infrastructure projects. These borrowings and consequent investment into infrastructure are expected to spur consumer spending.
As an aftermath of demonetization and the upcoming GST rollout, the government is expected to witness improved tax collection and a better control over fiscal deficit. With inflation being well below target range and a neutral stance by the central bank, the government is expected to kickstart consumption and drive growth through public expenditure.
Notably, the government has indicated that most of the budgeted capital spending for fiscal 2018 (increased by 10.7%) would be diverted towards infrastructure development. In the recent Union budget, the government also indicated that affordable housing is on top of the agenda and has also proposed to allow housing to be given infrastructure status.
Given the current under-utilisation and dampened demand, infrastructural commodities such as cement and steel are under pressure to maintain profits. These industries are expected to soon enter a phase of consolidation with only the fundamentally strong companies surviving. However, these currently undervalued companies are expected to perform exceptionally well fiscal 2018 onwards since the government has increased its allocation towards housing (under Pradhan Mantri Awas Yojna) by 39% (to Rs.29,000 crores) and towards transport infrastructure by 11%.
With a weak outlook on industrial capital expenditure and contribution, hopes lay heavy on infrastructure as a sector to drive investment growth. The government and Public Sector Undertakings are expected to do the heavy lifting on the infrastructure front to revive the economy and spur growth and action.
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