Global brokerage firm Morgan Stanley remains highly optimistic about India's infrastructure sector, forecasting a robust compound annual growth rate (CAGR) of 15.3% in infrastructure investments, totalling $1.45 trillion over the next five years.
In their report, Morgan Stanley highlights significant improvements in India's infrastructure, driven by government initiatives like PM Gati Shakti (PMGS). The brokerage firm underscores that efficient infrastructure can significantly reduce logistical costs and enhance India's manufacturing competitiveness. They predict that infrastructure investments will rise from 5.3% of GDP in FY24 to 6.5% of GDP by FY29, potentially leading to sustained high economic growth and a new peak in the profit cycle.
To capitalize on this anticipated growth, Morgan Stanley has identified four key stocks poised to benefit the most from this infrastructure boom: Larsen & Toubro (L&T), NTPC, Titagarh Rail Systems, and UltraTech Cement.
Larsen & Toubro (L&T)
Morgan Stanley expects L&T to significantly benefit from increased government spending on infrastructure projects. The brokerage highlights that lower steel and material prices could improve L&T's cost structure, while higher private capital expenditures could further bolster its growth. However, risks include potential slowdowns in government spending, delays in project execution, geopolitical risks, and rising material costs.
NTPC
Morgan Stanley sees NTPC benefiting from accelerated capacity expansion driven by increased power demand and improvements in State Electricity Boards (SEBs). Value-accretive acquisitions and unlocking value in subsidiaries could also provide significant upside. However, risks include project delays, under-recovery of costs due to coal or equipment shortages, non-core investments, and acquisitions that might not add value. NTPC's thermal business is valued at twice the projected H1FY27 price-to-book ratio, with its renewable business valued at 12 times the forecasted FY29 EV/EBITDA, discounted to H1FY27. The pumped storage business is valued at twice the regulated business multiples, assuming 3GW commissioning by FY31.
Titagarh Rail Systems
Morgan Stanley's base case for Titagarh Rail Systems is a target price-to-earnings (P/E) ratio of 35 times September 2026 earnings. This valuation reflects strong earnings visibility from a substantial order backlog and superior return ratios. Positive drivers include improved freight margins and a faster ramp-up in passenger coach production. Risks include supply chain disruptions, slowdowns in wagon tendering and passenger coach orders, and potential liquidated damages from delayed contractual obligations.
UltraTech Cement
Morgan Stanley believes UltraTech Cement has strong medium-term demand visibility despite short-term uncertainties. Key drivers include sustained demand and lower input prices. Potential risks involve weaker-than-expected demand due to macroeconomic deterioration and rising input prices without corresponding price increases, impacting profitability.
Morgan Stanley highlights the strategic importance of these four stocks in the context of India's anticipated infrastructure boom, emphasizing their potential for growth and the various factors that could influence their performance. The brokerage firm's detailed analysis reflects confidence in the sector's outlook and identifies key players likely to benefit from the government's ambitious infrastructure plans.
