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Posted by Manish Agrawal on Wednesday, 10 December, 2008

With the investors coming to terms with the economic slowdown and the stock market mayhem, they have become not only cautious but more selective about which sectors and stocks to invest in. While sectors such as steel and cement are now facing the cold shoulder of the investor, it is also found that the once sought after infrastructure companies aren’t the favorites either. The counters, which commanded huge premium on the bourses, made new peaks, and looked justified even at very high valuations just a year ago, today find themselves touching new lows with sharp corrections in their valuations. 

Poor Performance

The performance of infrastructure companies from a 52-week high shows that the lowest an infrastructure stock has fallen is by 63.33 per cent, while the maximum fall has been over 93 per cent. The Sensex during the same period has fallen 52 per cent (refer table on performance of infrastructure stocks). Gammon India, Unity Infraprojects and Jaiprakash Associates are the counters which have fallen the most in the infra pack at 93 per cent, 89.70 per cent and 88.97 per cent respectively. Meanwhile, Larsen and Toubro and Era Infra Engineering have slipped the least at 68 per cent and 63 per cent respectively. But if that wasn’t enough, despite such a massive fall in the prices of the scrips, there are hardly any takers for them today. The current state of the infrastructure scrips is due to the culmination of various factors that have developed over the last one year. Economy isn’t growing at the pace it did in the last fiscal. For Q2FY09 the GDP grew at 7.6 per cent. Though this was much to the surprise of many since expectations were lower than this, the GDP growth for Q2FY09 is certainly lower than the same period last year when it grew at 9.3 per cent. Despite this growth, the expectations for the Q3FY09 and Q4FY09 are still bleak. Thus there is an apparent slowdown in the economic growth. Inflation in double digits in H1FY09 and hardened interest rates haven’t made things easier as they escalated the overall.

Expert Speak

“Today the cynicism and the credit squeeze which you see is on account of two factors. First is the bad fundamentals. Globally most economies are in a downturn, resulting in reduced consumption. Second, more importantly, is the sentiment.Today many organizations are cash rich, but are not willing to deploy this cash due to high negative sentiment and uncertainty. The moment the government steps in as a long-term investor in infrastructure, the sentiment should change.”

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