www.rupeedesk.in
Shares of capital goods companies are likely to trade with a
negative bias next week as weak profit margin in overseas markets and slower growth in
domestic segments is seen affecting profitability of industry players going ahead.
Weak Apr-Jun earnings and expectations of a challenging quarter
ahead will also add to the negative sentiment for the sector. Project investments
continue to dip, investment cycle may still be deteriorating. Also, benefits of recent decline
in commodity prices may get eroded by currency fluctuation.
Shares of Larsen & Toubro, which reported strong order inflows
in the past few quarters, are also expected to dip next week, on concerns over margin.
Diversifying order inflows towards international geography and real estate helped, though
(L&T') margin trajectory is weak. 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 capita.
Investors favour shares of Bharat Heavy Electricals, Crompton
& Greaves and Voltas, as the companies are seen better placed in terms of business
management and product diversification compared to peers such as Thermax, Cummins and
L&T. Overall, the view on the industry remains weak as there are no new
project being announced, pointing to 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 to bottoming out,
in the near term the outlook is negative or cautious.
