Infrastructure Sector: Temporarily Beaten or Broken?

Investors are growing restless as their portfolios stay in the red. Many had pinned their hopes on strong, long-term themes like infrastructure to bring some much-needed relief. But instead, infrastructure stocks have turned out to be among the underperformers in recent months. In this story, Mandar Wagh takes a closer look at what’s really going on in the sector—its recent performance, what’s driving growth, what risks are emerging, and whether it still has the potential to deliver solid returns in the future

The infrastructure sector has consistently captured investors' attention due to its critical role in driving economic growth, supporting long-term development, and offering stable investment opportunities. Once riding a strong and uninterrupted upward trend, most infrastructure stocks have witnessed a sharp reversal, consistently marking new 52-week lows. This downturn comes amid growing pessimism in Indian markets, driven by the ongoing global trade war, persistent macroeconomic concerns, and sustained selling pressure from foreign institutional investors.

Reflecting this sentiment, the BSE India Infrastructure Index— which tracks the performance of leading infrastructure companies—has tumbled by nearly 30 per cent from its peak. As a result, investor confidence has been shaken, and many are now uncertain about the future trajectory of infrastructure investments, questioning whether the sector’s long-term promise can withstand current headwinds. In light of this evolving landscape, we present a timely and essential story that explores the infrastructure sector's current realities, recent performance, key growth drivers, emerging threats, and what lies ahead.

Infra-Led India
India’s infrastructure sector stands as a cornerstone of the country’s economic development, with robust activity across roadways, railways, airways, ports, power, energy, and construction. Backed by substantial investments and strategic government initiatives, the sector has witnessed unprecedented growth over the past few years. The expansion of national highways under National Highways Authority of India (NHAI) and the ambitious Bharatmala project is transforming surface connectivity, while the railways are witnessing a significant upgrade through electrification, high-speed corridors, and station modernization under Gati Shakti. Vande Bharat, India’s flagship semi-high-speed train, symbolizes the modernization of the country’s railway network with enhanced speed, comfort, and efficiency.

The aviation sector has gained momentum with the UDAN scheme improving regional air access, and port infrastructure is strengthening through the Sagarmala initiative, aimed at boosting maritime trade. In the power and energy space, the transition towards renewable sources is accelerating, aligning with India’s sustainability goals and offering new investment avenues. Construction activity remains resilient, supported by rapid urbanization and government-backed housing initiatives, creating demand across real estate and allied industries. As these verticals collectively fuel India’s infrastructure narrative, the sector presents a compelling long-term opportunity for investors seeking exposure to growth driven by policy support, demographic trends, and industrial expansion.

So, What Triggered the Shift?
Despite such strong prospects, what has triggered the sudden shift in investors’ sentiment? The momentum of the BSE India Infrastructure Index has noticeably slowed. After delivering a stellar rally of over 200 per cent during the current ruling party’s five-year term from 2019 to 2024, the index is now grappling with multiple headwinds. The index has plunged by nearly 30 per cent from its 52-week high, which was recorded in August 2024 amid a rally driven by the government’s continuation in power. One of the primary reasons for the weakness is the shift in policy focus.

In the recent budget, both experts and investors had anticipated major announcements for areas such as railways, power, and renewable energy; however, the absence of substantial new proposals left many disappointed. The budget emphasized boosting consumption and rural demand over fresh capital expenditure on large-scale infrastructure projects. This change in fiscal direction has caused a pause in momentum, especially after years of aggressive infra push that fuelled stock rallies. Additionally, the slowdown in new project announcements and delayed clearances due to the election season have contributed to the near-term drag.

Despite facing multiple headwinds, the cement sector managed to deliver positive topline growth. While year-on-year revenue growth remained modest, the industry posted a healthy sequential growth of around 15 per cent. This performance was largely driven by a surge in construction activity, fuelled by post-election infrastructure spending, improved rural demand, and a rebound in urban housing. Profitability also witnessed a significant uptick on a sequential basis. The sector’s aggregate net profit soared an impressive 245 per cent, with key players like Ambuja Cement Ltd and ACC Ltd leading the earnings recovery. Stabilising fuel prices helped ease pressure on operating expenses, while improved capacity utilisation across plants led to better absorption of fixed costs. Together, these factors supported margin expansion, allowing companies to improve profitability despite only moderate revenue growth.

Foreign institutional investors, typically cautious during political transitions, have scaled back infra exposure, adding to the selling pressure. Valuation concerns have also come into play. After a stellar multi-year rally—where the BSE India Infrastructure Index more than tripled between 2019 and 2024—many stocks were trading at elevated multiples. With profit booking and institutional rotation toward consumption-focused sectors, infrastructure has taken a backseat in recent months. Another current pressing concern stems from global factors.

The U.S. economy is currently grappling with renewed fears of a potential recession, largely triggered by escalating tariff tensions and their broader implications on global trade. One of the key sectors under the spotlight is metals, as any slowdown in global demand could significantly impact prices. Investors are becoming increasingly cautious, with markets already beginning to factor in the possibility of declining metal exports and reduced industrial activity. This anticipation is reflected in recent market trends, as pricing pressures and trade uncertainties continue to weigh on sentiment, highlighting the interconnected nature of geopolitics and commodity-driven sectors.

Infra Sector’s Financial Pulse
To present a holistic view of the sector’s performance, we have analysed all 30 constituents of the BSE India Infrastructure Index—spanning roadways, railways, airways, ports, power, and energy—offering valuable insights into the leading players shaping India’s infrastructure landscape. The year-on-year growth remained relatively muted, but the sector delivered a notable quarter-on-quarter improvement. In Q3FY25, on an aggregate basis, revenue rose by around 2 per cent year-on-year, while net profit surged by 8 per cent.

On a sequential basis, revenue grew by 4 per cent, accompanied by an impressive 26 per cent growth in net profit—reflecting improved operational efficiency. In terms of revenue growth, air travel-related companies such as InterGlobe Aviation Ltd (IndiGo) and GMR Airports Ltd delivered strong performances on both year-on-year and sequential bases. In contrast, power and energy companies such as Adani Green Energy Ltd, JSW Energy Ltd, and NHPC Ltd reported a decline in revenue on both year-on-year and sequential bases, accompanied by a significant drop in profitability.

Air travel companies delivered strong results in the December quarter, supported by a sharp recovery in domestic and international passenger traffic. The festive season and year-end holidays boosted load factors, while elevated airfares helped improve yield and overall revenue. Additionally, operational efficiencies and lower ATF (Aviation Turbine Fuel) prices in some months supported their bottom lines. On the other hand, unfavourable weather conditions impacted renewable energy generation, while thermal players faced pressures from rising input costs like coal.

Moreover, the absence of government’s fresh power purchase agreements and subdued demand from industrial consumers due to a high base and election-related slowdown affected revenue. Profitability was further dented by higher finance costs. Cement companies are pivotal in powering India’s infrastructure boom, supplying essential materials for roads, bridges, metro rail, housing, and industrial projects. With increased production capacity, innovative green technologies, and strategic distribution networks, companies like Adani Cement, UltraTech Cement, Ambuja Cement are strengthening the foundation of India’s urban transformation and economic development.

IRB Infrastructure Developers Ltd emerged as a remarkable turnaround story, with its net profit surging from ₹193 crore in Q3FY24 to an impressive ₹6,026 crore in Q3FY25. However, the extraordinary performance was primarily driven by a one-time exceptional gain arising from the transfer of assets to IRB’s private InvIT platform. Apart from this one-time boost, IRB’s consistent toll collection growth and steady execution of projects also contributed positively. In conclusion, while India’s infrastructure sector may not currently be in its most dynamic phase, a deeper analysis highlights a narrative of underlying resilience, operational discipline, and long-term strategic alignment.

While headline growth numbers appear modest, the sector is undergoing a structural shift—one that prioritises sustainable execution over flashy short-term gains. Companies are streamlining operations, adapting to evolving policy landscapes, and preparing for the next wave of demand that will emerge once macro stability returns. What’s especially encouraging is that the sector’s backbone—comprising airports, roads, ports, and power—remains intact. Even amid pressures like rising input costs or lack of fresh government contracts, most players have maintained stable margins and continued to progress on project execution. Investors who look beyond the immediate noise will find that infra companies are not just surviving—they're preparing to thrive.

Light at the End of the Tunnel
India's infrastructure sector stands at the cusp of a transformative growth phase, emerging as a key pillar in the country's ambition to become a USD 5 trillion economy. Although there were limited new announcements in the recent budget, the government reaffirmed its commitment to infrastructure development by maintaining a record capital outlay of ₹11.11 lakh crore. The sector is poised for a significant upswing, backed by strong policy support, rising private sector participation, and a robust pipeline of projects. One of the key catalysts is the government’s ambitious National Infrastructure Pipeline (NIP).

It aims to invest over ₹100 lakh crore across areas such as roads, railways, power, ports, and urban infrastructure. Additionally, initiatives like Gati Shakti and the PM’s Vision 2047 are designed to enhance inter-ministerial coordination, fast-track approvals, and improve project execution timelines. These efforts are already bearing fruit, with significant progress being made in highway construction, metro rail expansion, and logistics parks. Private capital is also flowing steadily into infrastructure projects, aided by reforms in Public-Private Partnership (PPP) models and increased monetisation opportunities through instruments like Infrastructure Investment Trusts (InvITs).

The success of asset monetisation schemes and the growing appetite of global infrastructure funds and sovereign wealth funds highlight the sector’s improving risk-return profile. The demand side is equally compelling. Rapid urbanisation, rising disposable incomes, and growing industrial activity are creating a sustained need for modern infrastructure. In addition, sustainability is becoming a key theme. India’s commitment to green growth is steering significant investments toward renewable energy infrastructure, green hydrogen, electric vehicle charging networks, and climate-resilient urban planning. Segments such as solar energy, waste management, and water infrastructure are emerging as promising areas with long-term potential. From an investor’s standpoint, listed infrastructure companies have shown improved balance sheets, stronger order books, and better execution capabilities post-COVID. Many players are also diversifying into asset-light models and EPC contracts to enhance profitability. For investors seeking long-term, stable returns with inflation-hedging potential, India’s infrastructure story presents a compelling opportunity — one built on strong fundamentals and supported by a long-term growth vision.

Final Takeaway
India’s infrastructure sector continues to be a vital engine for long-term economic growth and development. While the recent correction in infrastructure stocks may have unsettled short-term sentiment, it has also provided a much-needed reset in valuations—creating attractive entry points for long-term investors. The structural growth drivers of the sector remain strong, backed by consistent government support, a clear investment roadmap, and rising demand across transportation, energy, urban development, and digital infrastructure. The shift in fiscal focus toward consumption and rural demand does not diminish the importance of infrastructure—it only reflects the need for balanced growth.

With the electoral cycle now behind us and administrative momentum gaining pace, the pace of project approvals, fund allocations, and on-ground execution is anticipated to gather significant traction. Investors would do well to look beyond short-term volatility and focus on companies with strong order books, sound governance, and demonstrated execution capabilities. As India marches toward its goal of becoming a USD 5 trillion economy, infrastructure will remain the backbone of progress. The correction is not the end of the story—it’s a healthy pause before the next leg of growth begins!

Here’s how investors can find good infrastructure stocks with strong fundamentals. Start by identifying sub-sectors within infrastructure that enjoy solid government support. These areas often benefit from long-term policy pushes and steady project pipelines. Next, focus on companies with a growing order book, especially those with an order book-to-revenue ratio above 2, as this indicates future revenue visibility. Consistent revenue and profit growth over the past few years, along with stable or improving operating margins, are key signs of a company’s financial health. It’s also important to look for a manageable debt-to-equity ratio (preferably below 1) and positive operating cash flows.

Strong promoter holding and low or no pledged shares show management confidence. Investors should also check how efficiently a company uses capital. Reading annual reports and investor presentations can provide valuable insights into the company’s growth strategy, execution capability, and risk management. Finally, compare valuation ratios with peers to ensure the stock offers value. By combining these factors, investors can shortlist infra stocks that are not only financially sound but also positioned for sustainable long-term growth. Keep reading Dalal Street Investment Journal for timely updates and in-depth analysis to help you capitalise on emerging opportunities.