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Stocks of most capital goods companies are likely to continue trading with a negative bias in the coming sessions due to weak quarterly earnings from industry players and gloomy outlook on projects and margins. Larsen & Toubro, the leading stock in the segment, is also down due to weak margins. Also, the Reserve Bank of India's latest steps to tighten liquidity will put downward pressure on capital goods companies' stocks. Yesterday, the RBI said it will auction 220 bln rupees of cash management bills every Monday to further contain volatility in the foreign exchange market. Projects are delayed as clients are going slow on capex (capital expenditure) due to liquidity pressure, payments are deferred, which has led to delay in booking revenues, even as expenditure continues, resulting in margin pressure and deterioration of working capital.
Also, new project announcements have further dried up, pointing towards subdued industrial and capital expenditure activity in the coming quarters. The stock valuations are now at realistic levels, but investment cycle is still weak. Even though the stocks might be very near bottoming out, in the near term the outlook is negative or cautious. The preferred stock for next is Thermax due to favourable placement of its products and built up capacity. Investors are also bullish on ABB, as the company is likely to report a moderate growth in revenues as well as profit for Apr-Jun. Despite investors being bullish in the short term, the stock may see some decline on weak order intake for Apr-Jun Siemens, which posted weak results last week, is seen trading down in the coming sessions on project delays and margin pressure.
Stocks of most capital goods companies are likely to continue trading with a negative bias in the coming sessions due to weak quarterly earnings from industry players and gloomy outlook on projects and margins. Larsen & Toubro, the leading stock in the segment, is also down due to weak margins. Also, the Reserve Bank of India's latest steps to tighten liquidity will put downward pressure on capital goods companies' stocks. Yesterday, the RBI said it will auction 220 bln rupees of cash management bills every Monday to further contain volatility in the foreign exchange market. Projects are delayed as clients are going slow on capex (capital expenditure) due to liquidity pressure, payments are deferred, which has led to delay in booking revenues, even as expenditure continues, resulting in margin pressure and deterioration of working capital.
Also, new project announcements have further dried up, pointing towards subdued industrial and capital expenditure activity in the coming quarters. The stock valuations are now at realistic levels, but investment cycle is still weak. Even though the stocks might be very near bottoming out, in the near term the outlook is negative or cautious. The preferred stock for next is Thermax due to favourable placement of its products and built up capacity. Investors are also bullish on ABB, as the company is likely to report a moderate growth in revenues as well as profit for Apr-Jun. Despite investors being bullish in the short term, the stock may see some decline on weak order intake for Apr-Jun Siemens, which posted weak results last week, is seen trading down in the coming sessions on project delays and margin pressure.
