Capital
Goods Stocks Outlook for the week – 14 to 18.09.2015
(Seen in range with positive bias)
Stocks
of most capital goods companies are seen trading rangebound with a positive
bias next week on favourable industrial production data for the sector in July.
According to information released by the Central Statistics Office yesterday,
after market hours, the overall industrial growth for India in July stood at
4.2% as compared to 4.4% in June and 0.9% in the previous year.
However,
given the high valuation of most stocks in the sector the surge in stock prices
will have
limited
headroom. We note that despite a 19% correction in the (capital goods) sector
valuations in 1 month, we remain negative on most stocks under our coverage
given their expensive valuations.
We
also expect the positive economic data to have a short-lived impact on the
shares of capital
goods
companies. With key reforms such as land bill and goods and services tax being
held up, the sector is unlikely to see any significant gains.
Shares
of state-owned power equipment maker Bharat Heavy Electricals and Thermax,
however, are seen weak going ahead owing to company specific issues. Most of
the recent gains in Thermax have been on account of execution of one very large
order from Reliance Industries. With this order now close to completion, the
earnings may weaken going ahead as the order inflows for Thermax from core
sectors such as cement and steel are yet to pick up.
Similarly
for BHEL, the company's earnings are seen remaining weak going ahead owing to a
slow moving order book and no significant order wins.
