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Stocks of capital goods companies are expected to trade with a positive bias next week riding on improved order inflow and better liquidity. Investors expect overall momentum in orders for capital goods companies to further improve by the end of the year. Decision of Cabinet Committee on Investment to revive stalled projects is a positive development for the sector as a whole. The directive to Coal India to commit to over 170 fuel supply agreements will also benefit the companies catering to the power sector. In September, the Cabinet Committee on Investment made local sourcing of equipment mandatory for companies setting up ultra mega power projects in the country, leading to more demand and order inflow for the capital goods sector. With the government going ahead with auction of two more ultra mega power projects soon, the capital expenditure cycle is also expected to revive. Investment by power companies, primary market for capital goods sector, is also set to revive, after the government directed Coal India Ltd to sign 173 fuel supply agreements for a capacity of 78,000 MW. Lack of timely supply of domestic coal has forced power companies to import coal, increasing their fuel cost, which in turn has led to lower capacity utilisation. A subsequent decrease in capital expenditure by the power companies impacted orders from the sector. Investors prefer companies operating with diversified revenue streams across different geographies like Crompton Greaves, Larsen and Toubro, and KEC International. Bharat Heavy Electricals Ltd is also expected to trade higher as the company is expected to benefit the most from the government measures to boost investment in the power sector. The BHEL stock price has run up close to 40% from its lows in August on the back of positive news-flow including domestic sourcing of equipment for ultra mega power projects. The sector bellwether L&T will move up as analysts estimate a near 40% growth in order book for the company in Jul-Sep. L&T has already crossed 50% of inflow target required to meet 20% FY14 growth guidance. We estimate a modest rebound from an extremely weak June quarter. The inflow momentum from water & effluent treatment and transmission and distribution has also improved.
Stocks of capital goods companies are expected to trade with a positive bias next week riding on improved order inflow and better liquidity. Investors expect overall momentum in orders for capital goods companies to further improve by the end of the year. Decision of Cabinet Committee on Investment to revive stalled projects is a positive development for the sector as a whole. The directive to Coal India to commit to over 170 fuel supply agreements will also benefit the companies catering to the power sector. In September, the Cabinet Committee on Investment made local sourcing of equipment mandatory for companies setting up ultra mega power projects in the country, leading to more demand and order inflow for the capital goods sector. With the government going ahead with auction of two more ultra mega power projects soon, the capital expenditure cycle is also expected to revive. Investment by power companies, primary market for capital goods sector, is also set to revive, after the government directed Coal India Ltd to sign 173 fuel supply agreements for a capacity of 78,000 MW. Lack of timely supply of domestic coal has forced power companies to import coal, increasing their fuel cost, which in turn has led to lower capacity utilisation. A subsequent decrease in capital expenditure by the power companies impacted orders from the sector. Investors prefer companies operating with diversified revenue streams across different geographies like Crompton Greaves, Larsen and Toubro, and KEC International. Bharat Heavy Electricals Ltd is also expected to trade higher as the company is expected to benefit the most from the government measures to boost investment in the power sector. The BHEL stock price has run up close to 40% from its lows in August on the back of positive news-flow including domestic sourcing of equipment for ultra mega power projects. The sector bellwether L&T will move up as analysts estimate a near 40% growth in order book for the company in Jul-Sep. L&T has already crossed 50% of inflow target required to meet 20% FY14 growth guidance. We estimate a modest rebound from an extremely weak June quarter. The inflow momentum from water & effluent treatment and transmission and distribution has also improved.
