Bullish on capex and realty stocks? L&T, Greenpanel among 19 ideas from ICICI Securities

The massive capex push of Rs 10 lakh crore by the central government has fuelled real estate investments helping the prospects of stocks in the segment, said ICICI Securities in a report today while picking L&T, Greenpanel Industries and Century Ply among its top 19 stock ideas to play the realty and capex theme.

“While the corporate capex cycle has clearly formed a bottom and is showing signs of improvements selectively, we expect a broad-based upcycle to build up gradually as global uncertainties subside. Likely end of an aggressive interest rate hike cycle could potentially augment the overall investment and real estate cycle further,” the domestic brokerage said.

Institutional data indicates that the largest contribution to growth in gross fixed capital formation (GFCF) was by the household sector, which expanded its share to Rs 27.5 lakh crore, up by 30%YoY. Of this, investment in real estate stood at Rs 18.5 lakh crore — up 32% YoY. Government’s share in GFCF kept a comparable pace with 29% YoY growth.

The realty sector has outperformed benchmark indices Nifty50 and BSE Sensex over a 1-year period. The BSE Realty and Nifty Realty have given returns of nearly 24% during this period versus 17.8% and 16% returned by Sensex and Nifty50, respectively. Meanwhile, S&P BSE Capital Goods has gone up by 11,539.37 points or 45.42%.

Investments by Indian households in the real estate sector over the past two financial years have been instrumental in leading the post-pandemic economic recovery of the country, the ICICI Securities report said.

Consequently, the contribution of the household sector’s investment in real estate to the GFCF rose to a 7-year high of 27.2%. This trend is corroborated by strong aggregate sales (29% YoY growth in FY22) of real estate firms under ICICI Securities coverage

GFCF, which measures addition of fixed assets like dwellings, buildings & structures, machinery & equipment, saw a 25.6% year-on-year jump during FY2022 to reach Rs 67.9 lakh crore in nominal terms according to a report published by ICICI Securities.

The household sector was the largest contributor to the gross fixed capital formation (GFCF) in FY2022. While an institutional breakup of GFCF for FY23 is not yet available, the latest indicators of real estate demand by households remain robust.

The trend repeated in FY23 where GFCF registered a 17.1% YoY growth at a nominal value of Rs 79.5 lakh crore, leading to economic revival once again, the report said.

While an institutional breakup of GFCF for FY23 is not yet available, several indicators point to a robust show by the real estate sector in the financial year, gone by.

Housing loans by banks grew 15.4% YoY on a 12-mma basis with a robust pan-India housing-related cement and steel demand (large domestic players like UltraTech and Tata Steel indicating strong housing-related demand), the report revealed.

ICICI Securities also mentioned private surveys, which indicated the continued strength in real estate absorption on a pan-India basis, driven by resilient real estate prices.

At the cusp of the end of an aggressive interest rate hike cycle, the overall inflows is likely to augment from here, benefitting real estate and capex plays, the report noted.

Top stock ideas from ICICI Securities in capex and real estate theme:

Real estate & Materials
Brigade Enterprises, Kajaria Ceramics, Greenpanel Industries, Century Ply, JK Cement, JSPL, Shyam Metalics, APL Apollo

Capital goods & other capital intensive industrials
L&T, BHEL, Ashok Leyland, BEL, BDL, Bharti Airtel, NTPC, ONGC

Lenders
SBI, Axis Bank, HDFC Bank

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)