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Short covering and the decision to bar power project developers from importing equipment is likely to boost sentiment for capital goods stocks next week.The August cycle of futures and options contracts is set to expire next week on Thursday. It will take up stocks of the sector in the coming week. An empowered group of ministers yesterday also cleared bidding norms for ultra mega power projects, clearing the way for auctioning of new power projects, which in turn will help boost demand for capital goods companies. As per the new norms, companies developing these power projects will not be allowed to import equipment, facilitating increased demand in the domestic market.
Demand is expected to increase and as a result capex cycle will also look up. We are finally seeing some action in the sector after a long time. Investors prefer stocks of Bharat Heavy Electricals, BGR Energy and Larsen & Toubro, who cater to the demand for power equipment. BHEL's stocks are expected to be higher also on low valuation; while L&T is seen marginally higher as the company is seen as a steady performer. The market will also see sporadic buying in the sector due to attractive valuation of the stocks. Stock prices in the sector have been under pressure in the recent past, mainly due to an adverse macro environment. However, investors feel that most of the downside is already priced in and has bottomed out. Investors said they expect power purchasing to increase on commissioning of additional power capacities, better financial position of state electricity boards, provision to pass on cost of imported fuel and slightly better coal availability.
Short covering and the decision to bar power project developers from importing equipment is likely to boost sentiment for capital goods stocks next week.The August cycle of futures and options contracts is set to expire next week on Thursday. It will take up stocks of the sector in the coming week. An empowered group of ministers yesterday also cleared bidding norms for ultra mega power projects, clearing the way for auctioning of new power projects, which in turn will help boost demand for capital goods companies. As per the new norms, companies developing these power projects will not be allowed to import equipment, facilitating increased demand in the domestic market.
Demand is expected to increase and as a result capex cycle will also look up. We are finally seeing some action in the sector after a long time. Investors prefer stocks of Bharat Heavy Electricals, BGR Energy and Larsen & Toubro, who cater to the demand for power equipment. BHEL's stocks are expected to be higher also on low valuation; while L&T is seen marginally higher as the company is seen as a steady performer. The market will also see sporadic buying in the sector due to attractive valuation of the stocks. Stock prices in the sector have been under pressure in the recent past, mainly due to an adverse macro environment. However, investors feel that most of the downside is already priced in and has bottomed out. Investors said they expect power purchasing to increase on commissioning of additional power capacities, better financial position of state electricity boards, provision to pass on cost of imported fuel and slightly better coal availability.
