Infra stocks to continue their run beating capital goods shares, here's why

livemint.com:

NB: BSE Capital Goods index mostly consists of industrial equipment makers & service providers.Nifty & BSE Infra index is wisely diverse, consisting of energy, construction, power and equipment, transportation to tourism. BSE has performed better due to high exposure in PSUs & Midcaps.Capital Goods have outperformed infra stocks due to the lean capital requirement compared to the high long-term and working capital required by infra based companies. Their cash conversion cycle is longer due to the long period of inventory, manufacturing, EPC, and dependence on timely disbursement of government funds, which in total may take 2 to 4 months.

Consequently, capital goods companies are experiencing stronger earnings and better balance sheets, leading to significant upgrades as their utilization rates increase.The outlook for EPC companies in the infrastructure sector is currently strong, with the daily completion rate of road construction increasing by 20% in FY24. This trend is forecast to improve in the medium-term. Fund mobilization from NHAI is on the rise, and the high allocation of ₹2.78 trillion in FY25 is likely to expand companies order books.

India’s gross fixed capital formation (GFCF) to GDP hit 11year high of 33.5% in FY24. The newly elected government's swift action, with a 100-day agenda to award 3,000 km of highway projects, underscores its focus on infra development.Similarly, in the infra space, segments like railway, cement, and affordable housing will be major beneficiaries. As of February 2024, the government has spent 85% on FY24 capex.