Infrastructure: On the turnaround path?

Last Updated: Wed, Jul 11, 2012 05:40 hrs

Over the last one month, the market's views on infrastructure have turned positive again and the CNX Infrastructure Index has gained 7.3 per cent. Top-notch brokerages are coming out with extensive reports on the sector, listing the potential that companies in this space have. The reason behind this renewed optimism happens to be two big infrastructure projects that the government has identified -- Dedicated Freight Corridor (DFC) and the Delhi-Mumbai Industrial Corridor (DMIC). Once completed, these two key projects will facilitate manufacturing and transportation of finished goods. Policy logjam might be affecting many sectors, but the government is putting its entire weight behind these two projects, say analysts. Land acquisition, which is a big stumbling block for most projects, is not an issue for the DFC as 70 per cent of the land has been acquired for this project.

The planned investment in the Delhi-Mumbai Industrial Corridor is a staggering $90 billion and it will see the creation of several high-tech global manufacturing cities. The DMIC will be supported by a 1,500-km rail network (Dedicated Freight Corridor). According to HSBC Global Research, the central government will collaborate closely with seven state governments and the Japanese International Cooperation Agency to develop the DMIC as a cluster of high-tech global manufacturing and investment cities, which can compete with the best manufacturing and investment zones in the world. These cities will be spread over Uttar Pradesh, Delhi, Haryana, Rajasthan, Madhya Pradesh, Gujarat and Maharashtra. Seven geographical nodes have been identified and there will be 24 manufacturing and investment cities with world-class infrastructure.

The DFC, on the other hand, will be developed in three phases. In the first phase, the eastern and western corridor will be developed, while the north-south and east-west corridor would be developed in the second phase. Finally, the two corridors connecting the south would be developed. Together, these projects will account for 12 per cent of the $1 trillion of infrastructure spending planned over 2012-17.

As the projects gain momentum, different sets of companies would benefit from investments in both DMIC and DFC. In the first phase, contractors like Larsen & Toubro would stand to gain, as the company has a tie-up with Mitsui for rail development projects. Analysts believe some of the tenders in this space could be upwards of $1 billion. Wagon makers like Titagarh Wagons and Siemens India could be beneficiaries in the first phase, too. Once these projects near completion, the cascading effect would be felt by the industry at large as movement of goods would become much easier. However, analysts say logistics firms would be the last to benefit from this.

More from Sify: