Mumbai: Stocks in the infrastructure space were the biggest gainers on Friday, on expectations of big investments by the NDA government in boosting the country's infrastructure development.
The government, now back with a thumping majority, would like to step up investments in the infrastructure space, a key bottleneck in the country's economic growth.
An expected rate cut in the next RBI monetary policy meeting early June also seemed to have boosted market sentiments towards capital-intensive infrastructure companies.
The Bank of America Merrill Lynch Global Research report said lower interest rates will support economic recovery and capital expansion.
"BJP led NDA government recognises that investment driven growth requires lower cost of capital. By anchoring inflation at 4 per cent and cleaning up the banking system, it believes that it has created the space for structural reduction in the cost of capital. We expect the government to focus on cutting lending rates (50bp by March 2020) with the end-2018 liquidity crunch slowing growth. The RBI MPC should cut rates 35 basis points (bp) on June 6 (and 100 bp in 2019), with May inflation tracking 3.3 per cent. It should also infuse $2-3 billion of durable liquidity every month as it is doing," BofA ML said.
The BSE Capital Goods Index, which gained 3.98 per cent, was the biggest gainer among the sectoral indices, outperforming the benchmark Sensex, which gained 1.61 per cent. The Nifty Infrastructure Index also gained 2.94 per cent.
The top gainers among the infrastructure heavyweights on the BSE included L&T (4.60 per cent), IRB Infrastructure (5.97 per cent), HCC (5.24 per cent), Dilip Buildcon (5.00 per cent), GMR Infr (5.99 per cent), Ashoka Buildcon (5.33 per cent), GVK Power & Infrastructure (2.88 per cent), Jaiprakash Associates (1.44 per cent) and NBCC (6.07 per cent).
Capital goods makers also gained including BHEL (3.76 per cent), Siemens (3.10 per cent), ABB (4.57 per cent) and Bharat Electronics (9.09 per cent).
"The BJP wants to step up infra investment to around 10 per cent of GDP a year i.e., $1,450 billion by 2024 including agriculture investment to 2.5 per cent of GDP a year. It plans to develop India as a global manufacturing hub by achieving a top 50 ranking in Ease of Doing Business," BofA ML Global Research said.
The BJP manifesto has presented a road map to expand the country's GDP to $5 trillion by 2025 through a step up in infrastructure investment to 10 per cent of GDP from about 4 per cent now by cutting down the cost of capital.
