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Stocks of capital goods and engineering companies may rise marginally next week on account of short-covering ahead of the expiry of April futures contracts on Apr 25. Stocks of capital goods and engineering companies are likely to trade with a negative bias for next few months, with the exception of L&T and Cummins India, due to tepid demand environment. Most of these companies are also seen posting weak earnings owing to the weak order inflow in Jan-Mar and sluggish execution. The environment remains difficult for the capital goods space, as there is dearth of capex in key industries and fresh power capacity addition. We expect 6% YoY (year-on-year) de-growth in profitability due to deceleration in execution rate by power focussed players and due to margin pressures. Investors are banking on L&T and diesel-powered generator maker Cummins India as these companies are seen as steady performers, with strong fundamentals. The two companies are also likely report Jan-Mar earnings in line with market expectations. Stocks of Cummins India will remain rangebound with a positive bias. Given the current state of the sector, investors prefer L&T and Cummins India as they are seen as safe bets although they are unlikely to see any major upward trend. Even at the current levels, investors continue to be cautious on Crompton Greaves, as there is lack of clarity on the order inflows and restructuring cost incurred by the company's Belgium operations.
