Betting on infrastructure? Go for these 3 stocks

Sandip Sabharwal, analyst, asksandipsabharwal.com, says as people run out of options at 15000 index, ITC might see its time under the sun.

On SBI results
The bank numbers have been slightly tough to evaluate this time because there is a restriction on the recognition of NPAs. So, many banks have come out with the pro forma numbers etc. SBI numbers are fine but they do not take into account a lot of retail stress which is there in the system and which many of the financial companies have actually indicated. I believe a clearer picture should be available to us after this quarter. The State Bank of India has had a strong run up and I would say that near term it has got most positives factored in. The critical thing is the MPC policy today and the tone of that will have a significant impact on the performance of financials.

On 3 infrastructure companies to bet on
Larsen & Toubro remains at the top of the heap. A lot of people were initially sceptical about its lack of performance. It does not matter if it does not perform in the short term. Ultimately, it has performed and outperformed significantly and that is what you have to play for.

Some of the other stocks which one could play are companies which are into building activities and not so much into owning assets. There are a couple of them on the small and midcap side. We do not own them in very large quantities but we are continuously accumulating them on declines. One is JMC Projects which is part of the Kalpataru Group. It has come out with results. The top line was pretty interesting but bottom line pressures were still there because a lot of projects have taken off and to that extent, the margins will come through going forward. They have got a strong order book and some asset monetisation possibilities are there. That is one stock which I think is cheap.

The other stock is Ahluwalia Contracts. They are into very high-end construction. They work for the government, large real estate companies and they have a relatively zero debt balance sheet. They have got an order book today which is the highest ever and their execution should pick up next year.

So, some of these companies which are still not owned but offer a reasonable buffer as in valuation terms, these are trading much cheaper than what they did historically. Most of the PMSs, mutual funds have not looked below a particular threshold of market cap but some established large companies which have got a decent order book running into several thousand crores or execution capabilities, should be looked at at this point of time.

On ITC
Too many people keep on buying ITC at all levels because it is an intriguing company which tends to never deliver in terms of results but then there is always a hope out there. But the stock is cheap relative to historical valuations or relative to any other company in the sector. As people run out of options at 15000 index, ITC might see its time under the sun.