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Stocks of capital goods and engineering companies are expected to show a downward trend next week on account of weak Jan-Mar earnings coupled with limited order inflows and squeezed margins. Shares of Larsen & Toubro, which detailed its earnings this week, are seen down as investors remain cautious after the company's Jan-Mar operating margin dropped to 12.1% from 13.9% a year ago. However, L&T will continue to trade at stronger levels than its peers.
Shares of Bharat Heavy Electricals are also seen down in the short-to-medium term owing to macro economic issues affecting the power sector. "BHEL surprised positively with higher EBIDTA margins during Q4 led by lower RM (raw material) costs which we believe is unsustainable going forward.
We believe, BHEL is unlikely to derive any significant revenue and profitability from non-power segments like transportation, defence and renewable in the near to medium term. Shares of electrical equipment maker Crompton Greaves are seen down as the company reported yet another disappointing set of numbers. The Avantha Group company reported a Jan-Mar consolidated net profit of 252.7 mln rupees, down 74.8% on year, despite net sales rising 10.1% on year to 33.87 bln rupees.
However, the company did announce the completion of restructuring of its Belgium facility, which had been a concern for investors. This could lead to some value buying towards the second half of the week. The restructuring of Belgium operations has been completed during the year," the company said in a release. "The new European manufacturing platform in Hungary was scaled up as planned.
Crompton Greaves may be the biggest mover in long-term, and in short-term, its European business restructuring is likely to move the markets after the clarity on it. The margins of the company are still expected to be under pressure in the short-term, but may rise up after the completion of the restructuring.
