Construction Industry – expect a CAGR of 20% over the next 5 years

The Indian infrastructure, industrial and real estate sectors are experiencing strong growth in terms of capacity additions. Infrastructure growth is visible throughout the country in the form of new highways, roads, ports, railways and airports; power plants; urban and rural infrastructure, including water supply, sewerage, and drainage; irrigation and agriculture systems. Investments in real estate will be driven primarily by housing. On the industrial front, there is a strong pick up in industrial capex, particularly in the metals and oil and gas space. The Planning Commission estimates investment in the infrastructure sector to increase 2.3x for the next five years compared with investment in FY02-FY07. Similarly, we expect industrial capex and real estate (including SEZ) to increase 2.6x and 2x, respectively, over the same period. Construction today accounts for almost half of the fixed capital formation. Hence, the step-up in investment activity is a positive for the industry.

Construction investments can be estimated  by assessing construction intensity in various infrastructure and industrial segments. There is a sizeable variation in construction intensity among various segments. In roads and housing segments, construction investments could account for 80% and 100%, respectively, of the total investments, while in power (thermal) projects, for e.g., it could be just 45% of total investments.