In infrastructure, power, defence and railway PSUs expected to thrive: Ajay Bagga

Ajay Bagga, Market Expert, says the government and household spending are driving infrastructure growth, while private capital expenditure remains sluggish due to low capacity utilization and policy uncertainty. Despite export challenges, infrastructure providers, particularly those linked to government projects in power, defence, and railways, are expected to thrive. The focus should be on import substitution to boost domestic production, as large-scale private investment is still pending.

What is your view on the industrial space? How are you viewing this space and within this space do you see value in any particular pocket? We just had two results coming in. Engineers India had a stellar quarter, but Cummins India had a slightly muted quarter and their domestic demand contributed most to their revenue, but growth came from exports.
Ajay Bagga: If you had asked me about the sector, I would have named that after finance. Overall, if you look at the sector, where will the spend come from? The government continues to spend. So, government spending is happening well. Secondly, spending is coming from households and single firm proprietary entrepreneurs. The private capex is not coming through. So, private capex is a follower always and every year we get optimistic in December that this year will be the year of the private capex, it has not been happening for quite some time and you get the answer in the macro in the output gap.

When your capacity utilisation is still under 80%, nobody is in a crying need to put up new factories. When all these tariffs came in, especially the 145% tariff on China, there was excitement China plus one, this that, all our exporters came back and said I am not putting up a factory based on Trump policy which might change in two weeks and it did change, from 145 to 30. How do you make a business plan in that kind of a scenario? So, overall private capex is still some part away which is unfortunate, otherwise we would be growing at 8%. Why we are growing at 6.5 is because the government is doing the heavy lifting and the private consumption expenditure, the Indian household, is doing the heavy lifting.

Exports are not growing that fast and fourthly, private capex is not coming. In that, how do you look at the industrials or infrastructure? All the infra providers will do well. Power has taken a backseat last few months because of, now there is some kind of realisation on execution, but power remains evergreen, so anything to do with power whether evacuating power, whether producing power, transmitting it, or setting up storage units, renewables, all those will do well.

The infrastructure providing companies will do well, especially those linked to the government. That is why defence and railways always boom near to budget or whenever big order flows are expected to come through they do well and then the government capex-related companies do well.

In private capex, this year we are getting disappointed given the global over capacity. Just to give an idea, 21% of manufacturing goods move across the border in the world, so roughly 80% is consumed within the country. We have to find import substitution ideas where we can produce things within the country and consume them and there those industries linked to them will do well. But overall, stick with the government sector or the very small retail focused capex, the big private capex is probably still due.