Infrastructure stocks: From laggards to darlings

Written by: Sunil Fernandes

Infrastructure stocks: From laggards to darlings
IVRCL: Quotes, News
BSE 4.90BSE Quote0.07 (1.43%)
NSE 4.90NSE Quote0.05 (1.02%)
With market sentiments turning, infrastructure stocks have suddenly turned from laggards to darlings.
Until a few months ago, investors and market analysts were harping on the same tune: that these companies were over leveraged, and policy paralysis had crippled order inflows.

However, in the last few months, though there has been no material change in fundamentals, shares of infrastructure companies have rallied dramatically.

IVRCL Ltd, which had plunged to a low of Rs 27 on December 29, 2011, has gained more than 120%, to trade at Rs 61.60 on February 22, 2012. So, if an investor had to buy 1000 shares of IVRCL and pay Rs 27,000 on December 29, 2011, he could today sell the stock for Rs 61000  – a whopping gain of 120% in just under two months.

Similarly, GVK Power has jumped from Rs 9.60 to Rs 20, in two months. Other examples of infrastructure stocks that have gained substantially since their December lows include GMR Infrastructure, JP Associates, IRB Infrastructure etc.

So what has happened that has turned the tide? It seems nothing much has changed dramatically, except market sentiments. While the Nifty and Sensex have rallied 20% this year, infrastructure stocks have multiplied many times over. These stocks are high beta stocks and tend to rise and fall more sharply then other heavyweight stocks.

Hopes that these companies would benefit with a reduction in interest rates have boosted sentiments, though it must be admitted that order inflows have not gained dramatically.

To buy these stocks at current rates, when they have already risen sharply, would need a brave heart.

Read more about: infrastructure, stocks, sensex
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