The Indian fund unit of JP Morgan is positive on industrial and
infrastructure sectors, despite a sharp fall in their share values and
is not averse to raising its exposure if they fell further, it said on
Tuesday.
Stocks from the sectors have under-performed primarily due to concerns
over their ability to pass on higher commodity costs to customers as
well as execution-related challenges, the firm said in its monthly
factsheet.
"We have analysed each of the businesses in our portfolio... in most
cases we have found that the stock price reaction has been exaggerated
and expect the stock prices to be marked up subsequently as market
refocuses on business performance."
"We will not hesitate in adding to some of these businesses we like if
the market sentiment brings the prices down to irrational levels."
The BSE Capital Goods index has plunged 41 per cent this year, far
more than the 27 per cent decline in India's benchmark stock index,
Reuters data showed.
Shares in engineering and construction firm Punj Lloyd Ltd and
transmission lines contractor Kalpataru Power Transmission Ltd are
down more than 50 per cent.
However, JP Morgan said, the firms operating in these sectors had
strong cash flows and would benefit from government policies.
The Indian government estimates $500 billion worth of investment is
needed over the next four to five years to strengthen the country's
transport and power backbone.
"We continue to believe that industrial and infrastructure capex will
be a multi-year theme despite what the current stock prices seem to
suggest," the firm said.
The firm was overweight on the two sectors in both of its domestic
equity funds and had Bharat Heavy Electricals and Larsen & Toubro
among its top-10 holdings in JP Morgan India Equity Fund at the end of
May
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