SBI, HDFC Bank, ICICI Bank, 16 other stocks may benefit from industry re-leveraging cycle; here's why

ICICI Securities, in its strategy report released earlier this week, stated that as all the levers of the capex cycle in the country were in full swing, the industry's credit growth would also pick up. The brokerage expects meaningful re-leveraging going forward with the advancement of the capex cycle.

The listed corporate capex to depreciation ratio of 1.65 times, which has risen from a 2-decade low level, suggests India Inc.’s growth as a higher capex than depreciation means growth in asset base.

Furthermore, apart from the old-economy sectors, including the likes of energy, auto, telecom, etc., hi-tech-related investments in new-age sectors, including AI infra, EVs, green energy, etc., have the potential to be additional accelerators for the current capex cycle, the brokerage mentioned.

Stressing that the industry re-leveraging cycle is imminent, ICICI Securities says that its study of the capex cycles since 1980 and its relationship with industry credit growth suggest that both measures move in tandem. “Bottom of the NPA cycle, low systemic leverage and high CFO/capex or cash flow to capital expenditure ratio add to comfort,” the report said.

Related stocks will likely witness a re-rating on the premise that valuations are reasonable.

Amid this backdrop, the brokerage sees the segments, including banks, capital goods, energy, commodities, building materials, etc., to benefit. Further, its top picks seen as beneficiaries of the capex/industry re-leveraging cycle are L&T, GE T&D, VA Tech Wabag, Kalpataru Power, Jindal Steel and Power, Jindal Stainless, Astra Microwave, Bharat Dynamics, Grasim, JK Cement, Greenpanel, Kajaria, Century Plyboards, Shyam Metalics, Coal India, SBI, Axis, IndusInd and HDFC Bank.