Infrastructure Stocks

Future of Infrastructure Sector in India

India has a growing ambition to become a major economic superpower. This ambition has to be driven by various sectors of which, the infrastructure sector is a major growth engine. With its immense power to cause a domino effect in the economy, it's a no-brainer that the government of India is looking to amp up its capital expenditure budget after budget. The infrastructure sector includes power, bridges, dams, roads, and urban infrastructure development. India is said to become the world's third-largest construction market. Various schemes launched by the government promise huge opportunities for the companies involved in infrastructure-related activities. Under the National Infrastructure Pipeline, Housing For All 100-PM GatiShakti Cargo Terminals, and Smart Cities Project are some of the avenues that provide the impetus for the growth of infrastructure in India. 

Types of Infrastructure Systems 

The infrastructure systems can be divided into three broad categories given as follows:

• Soft Infrastructure: This type of infrastructure is less capital intensive and ensures smooth and obstacle-free functioning of the country. This includes financial institutions, law enforcement, governmental systems, education systems, etc. 
• Hard Infrastructure : This type of infrastructure system includes physical systems that allow businesses to run an efficient industrialized and modern nation. Some examples are highways, roadways, etc. These systems need capital and assets for functions and operations. 
• Critical Infrastructure: Finally, there is a critical infrastructure segment that is very crucial for the basic functioning of a country. This includes companies and businesses operating in energy, telecommunication, electricity, agriculture, public health, and so on. 

How to Select the Best Infra Stocks to Invest/buy

The best way to evaluate infrastructure stocks is to thoroughly examine their quantitative and qualitative dimensions. This involves mainly three points:

• Physical assets owned by the company 
• Company itself 
• Relationship between stock valuation and quality 

When choosing the best infrastructure stock, an investor should look for capital appreciation as well as net income. Further, when looking at different physical assets, you should consider the factors such as growth prospects, the market position of the firm, and the contract or regulatory framework. And because the contract framework helps in computing the revenues, it should be analyzed carefully. 

Management in infra stocks: As an investor, you should also closely observe the capital structure, strategic direction, corporate governance issues, and operational quality of the entire management of the company. Once you analyze the company's quality and its asset level, you should focus on the overall performance and quality of the business. 

Order Execution by infra companies: It is a key factor that determines the quality of business and the better the quality, the higher will be the evaluation. However, keep in mind that a fat order book doesn't mean anything if the company is not able to run the projects in a fast and efficient way. Most projects now come with deadlines and incur penalties in case of late delivery. 

Financial Stability in infrastructure stocks: Next, the consolidated statements of a company including its profit and loss data, balance sheet, cash flow statement, etc. also need to be analyzed to determine the quality and performance of the infrastructure company. The fundamental ratios to analyze include debt-equity ratio, book-to-sales ratio, price-to-book ratio, asset management ratio, and a few others. 

Debt to Equity ratio in infrastructure shares: As we have discussed above, infrastructure companies are capital intensive, you will find their debt to be slightly high on their balance sheets. Here, you need to ascertain whether the company has sufficient returns and profits concerning the debt it raised. Besides, you should also take into account the interest cover ratio, which can be easily calculated by the following formula:

Important things to remember:

Do Not Blindly Follow Hot Tips: No matter how credible the source is, never follow a stock marketing tip blindly without conducting thorough research personally. Always select the stocks after doing proper research and analysis on the performance as well as the companies. While some tips can work out to give you huge benefits, the wrong ones can push you down under the risk pretty quickly. 

Eliminate Loser Stocks from Portfolio: There is absolutely no guarantee that a stock will rise after a great fall. Know that it is extremely important to be practical about what is possible and what's impossible in the stock market. So, upon realizing that a stock is performing poorly in your portfolio, accept your mistake and sell it immediately to prevent further losses. 

Don't Exceed Your Investment Budget Abruptly: While it's true that long-term investments are way better than other forms of investment, you shouldn't exceed your investment budget in a haste. Instead, decide on a fixed amount and invest it across various good stocks. Rather than investing in only one stock, divide your budget evenly across multiple good-performing stocks and shares. 

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