Shares of construction companies outperform in one month

MUMBAI: Shares of construction companies outperformed the broad markets in the month ended 17 May. Shares of Larsen & Toubro, NCC, GMR Infrastructure and Jaiprakash Associates gained 14.18%, 12.94%, 10.51% and 10.42% respectively among shares of other construction companies. ET construction index that represents construction sector has reported gains of 13.12% during the same period, while BSE Sensex has gained 8.3%.

Construction sector has been adversely impacted in last five years as economy slowed down. Especially in the last three years the sector was marred by stalled projects due to issues such as clearances by environmental, forest ministries and rising interest rates. Due to time over-runs and rising costs arising out of rising interest rates and inflation in input prices, the companies have seen poor profitability. The sentiment was bad and the stocks were quoting at attractive valuations.

However the investor perception is changing now. "With falling interest rates and announcement of new projects award by various government agencies these companies are expected to do well," says Kartik Mehta, assistant vice president, Equity Research - Institutional, Sushil Finance. Attractive valuations and expectations of better future have brought back investors to construction stocks. Kartik Mehta prefers Larsen & Toubro as a long term investment pick. He also likes GMR Infrastructure and GVK Infra as high risk investments.