TOP STOCKS THAT ARE LIKELY TO BENEFIT FROM THE SMART CITY BOOM

The government may be finding it tough to push through ‘big bang’ reforms in Parliament, but it is taking other steps to give a fillip to the economy.The ambitious Smart City project, which aims to revamp urban infrastructure, is one such area where the government is making good ground. Last week, it announced a list of 98 cities—two more will be finalised later—which have been identified for development. Over the next few years, the government plans to spend over `3 lakh crore to recast these urban centres. Apart from huge implications for the Indian economy, this exercise will also benefit specific businesses.

Experts concur that the thrust on improving existing infrastructure and lifestyle in urban India is likely to drive demand in a few select sectors. According to the Ministry of Urban Development, being classified a Smart City would require basic elements like adequate and potable water supply, efficient waste management solutions, electricity connections affordable housing, high-speed Internet connectivity and more. Analysts believe that the spending boost by the government will benefit companies in sectors associated with such amenities. However, it would be some time before the project related work starts reflecting in the numbers of these firms, given that it is yet to take off the ground. Investors need to take at least 3 to 5 years perspective while investing in any of these names. Here are some stocks that could emerge winners from the Smart City push:

The most tangible theme emerging from the Smart City mission is the thrust on affordable housing. Additionally, the entire housing sector will be further bolstered by the ‘Housing for All’ initiative, also called the Pradhan Mantri Awas Yojana, through which the central government seeks to build 2 crore homes for the urban poor by 2022.

Any boom in the housing space is likely to benefit companies operating in its proxy sectors. Prominent among them are companies in cement, paints, electricals and piping segments. For cement manufacturers, the sharp correction in coal and crude oil prices— key ingredients in cement manufacturing— offers potential for expansion in operating margins in coming months. While big players like ACC, Ultra Tech Cement and Ambuja Cements are well placed to ride the demand scenario, some of the mid-sized cement firms operating in South India are doing particularly well, on the back of pickup in construction activity and rising cement prices in the region. Shares of Ramco Cements, Deccan Cements and Sagar Cements surged of late, but present a good buying opportunity after the recent correction. “Cement prices have sustained at higher levels in the southern region for past one year and alleviate our concern of erosion of pricing power of cement manufacturers in the region,” says Sanjeev Kumar Singh, Analyst, Emkay Global Financial Services.

The demand for lighting, switchgear and other electrical equipment will also get a boost from the uptick in construction. Firms like Bajaj Electricals, Havells India and Crompton GreavesBSE 7.18 % are among the established players in this space.Among them, Bajaj Electricals is a candidate for rerating after a turnaround in its project business. “Bajaj Electricals being a strong brand is well positioned to reap the benefits of a revival of the Indian economy, growing urbanisation and lower penetration of appliances,” says Sanjay Manyal, Analyst at ICICI Securities.The benefits from the boom will extend to the housing finance players.

Once construction activity takes off, the demand for housing loans will be on the higher side, which will particularly benefit smaller NBFCs like Gruh Finance, Repco Home Finance and Can Fin Homes. A sizeable portion of the loan books of these companies comprise the affordable housing segment.The government’s emphasis on sanitation and hygiene will also create a healthy demand for companies in the sanitaryware, waste management and water treatment space. Cera Sanitaryware and Kajaria Ceramics are among the leading players in the sanitaryware segment.Water treatment solutions provider VA Tech WabagBSE -0.31 % will be a direct beneficiary of the Smart City initiative, being a dominant player in this business. Being involved in the ongoing National Rural Drinking Water programme for providing safe drinking water will go a long way in helping it bag orders for the Smart City project.