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Stocks of capital goods companies are likely to shed this week's gains in the coming week due to continued weakness in operating margin, project delays, sluggish investment, and slow pace of order booking. Shares of capital goods companies rose this week on short covering. Stocks of companies such as Bharat Heavy Electricals Ltd, which were up this week on expectations domestic sourcing of power equipments may be made mandatory for power utility companies, are also seen down next week. The market absorbed the positive sentiment on the announcement (bidding norms) last week. Coming week, stocks will correct because the benefit of it, if any, will come only by the year-end. In the near term, there is no positive movement An Empowered Group of Ministers on Aug 23 cleared bidding norms for ultra mega power projects, paving 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 may have to mandatorily source power equipments domestically, facilitating increased demand for capital goods players. Shares of capital goods companies are also seen down next week due to the weak rupee, which erodes profits of such companies who, on an average, import around 60% of their raw material needs. Benefits of recent decline in commodity prices will get eroded by currency fluctuation. It is a steep fall, so the impact is also likely to be higher However, Larsen & Toubro is the preferred stock in the pack, as impact of the rupee's fall against the dollar is seen mitigated due to the company's overseas operations. Diversifying order inflows towards international geography and real estate helped though (L&T's) margin trajectory is still weak Even though companies such as Crompton Greaves and L&T have indicated signs of revival in the industry and improved order inflow, investors do not see any significant improvement in the profitability of the sector players. Projects are being delayed still, as the power to invest has still not revived. There is delay in booking revenues, while operating expenditure continues, resulting in margin pressure and deterioration of working
Stocks of capital goods companies are likely to shed this week's gains in the coming week due to continued weakness in operating margin, project delays, sluggish investment, and slow pace of order booking. Shares of capital goods companies rose this week on short covering. Stocks of companies such as Bharat Heavy Electricals Ltd, which were up this week on expectations domestic sourcing of power equipments may be made mandatory for power utility companies, are also seen down next week. The market absorbed the positive sentiment on the announcement (bidding norms) last week. Coming week, stocks will correct because the benefit of it, if any, will come only by the year-end. In the near term, there is no positive movement An Empowered Group of Ministers on Aug 23 cleared bidding norms for ultra mega power projects, paving 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 may have to mandatorily source power equipments domestically, facilitating increased demand for capital goods players. Shares of capital goods companies are also seen down next week due to the weak rupee, which erodes profits of such companies who, on an average, import around 60% of their raw material needs. Benefits of recent decline in commodity prices will get eroded by currency fluctuation. It is a steep fall, so the impact is also likely to be higher However, Larsen & Toubro is the preferred stock in the pack, as impact of the rupee's fall against the dollar is seen mitigated due to the company's overseas operations. Diversifying order inflows towards international geography and real estate helped though (L&T's) margin trajectory is still weak Even though companies such as Crompton Greaves and L&T have indicated signs of revival in the industry and improved order inflow, investors do not see any significant improvement in the profitability of the sector players. Projects are being delayed still, as the power to invest has still not revived. There is delay in booking revenues, while operating expenditure continues, resulting in margin pressure and deterioration of working
