‘Whatever it takes’ to boost growth – funding no longer an issue

FY22 India Budget marked a significant change in the stance toward boosting growth at any cost. As compared with a tone of fiscal consolidation for the past few quarters, the FM went all out to reassure that the Government will increase spending even if it leads to a higher fiscal deficit. With the Government choosing to spend even at the cost of a significantly higher GFD at 9.5% in FY21E and 6.8% in FY22E, a major overhang on the fund availability for the sector goes away. L&T, Cummins India, KNR and PNC are our top picks in the sector.

* Without debating the sustainability of such a high GFD/GDP estimates, at least for the infra sector this is a major positive, in so far as the availability of funds from the Government is concerned.

* Setting up of a specialized DFI for Infrastructure financing is a key positive and was along expected lines; however, the quantum of equity contribution of Rs200bn and target lending portfolio of Rs5tn in three years is a positive surprise.

* Another key positive is the setting up of a National Asset Monetization Pipeline, similar to the existing National Infrastructure Pipeline. This will bring in transparency for asset monetization plans of the Government and help fund infra capex in the long run.

* As far as actual sectoral infrastructure capex is concerned, while the overall budgetary allocations are up sharply across the board, actual capex will still not rise meaningfully in FY22E, except for railways.

* Contrary to our expectations that an increase in budgetary allocations would be accompanied with a similar increase in borrowings (IEBR funding) by the respective Ministries (roads and railways), the overall planned capex for key sectors such as roads, railways and defense is not witnessing much growth.

* While overall budgetary allocation toward capex for FY22E at Rs5.54tn is 26% higher than FY21RE numbers, the total infra capex target in FY22 is also up 26%, including planned borrowings. This is largely driven by an extremely low base for railways capex in FY21E (up 1.9x in FY22E).

Top picks from Emkay coverage

L&T, Cummins India, KNRC and PNCL are our top picks in the sector based on: 1) mediumterm opportunities under NIP; 2) existing order backlog; and 3) relative valuation.

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