Capital Goods Stocks Outlook for the week - 29.12.2014 to 02.01.2015

Capital Goods Stocks Outlook for the week - 29.12.2014 to 02.01.2015

Stocks of capital goods companies are seen extending losses next week, tracking the wider market that is likely to see subdued trading. We also see weakening of west Asian economies, on account of the fall in crude oil prices; hurting the order visibility and payment cycles of capital goods companies, especially sector major L&T.

Brent crude oil prices, which have touched a sub-$60 per barrel price last week, were holding steady above $60 a barrel today. We believe that there are no near-term triggers, which may shoot prices upwards, and added that a price cut is imminent.

L&T's Middle East RoCE (return on capital employed), which is materially lower than Indian RoCE, could further deteriorate as decline in crude prices could lead to sharp cut in GCC (Gulf Cooperation Council region) construction spending and execution delays. Similarly, energy and environment maker Thermax is also likely to see the impact of subdued demand from west Asia, which is one of its key markets in terms of project orders.

With the demand from international market softening and domestic market yet to show significant signs of recovery, investors resort to profit booking at the current levels as most companies are already sitting on plump valuation.