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Stocks of most capital goods and engineering companies are seen moving up next week as investors see an uptick in order inflow. Investors are accumulating stocks of capital goods companies, expecting positive business environment after the upcoming general elections. Capital goods and engineering sector has been affected by policy bottlenecks in power projects, slowdown in public spending and sluggish industrial capital expenditure activity for almost two years now. Early sign of a change in central government is largely one of the reasons that the stocks of the sector are seeing a revival. According to exit polls, the Bharatiya Janata Party is likely to win assembly election three of five states that went to polls recently and this boosts the chance of the BJP, which is being perceived as more growth-friendly party, coming back to power at the Centre next year.
There are some signs of stabilisation. Revenue growth of the capital goods companies was flat on an average in the past quarter (Jul-Sep). That is positive considering earlier quarters were marked by a decline in profits. If the growth sustains and order inflow trend broadens for the next few quarters, policy decisions after the elections would give a positive fillip to the industry. Margins and profits of the capital goods companies will improve in the quarter-ended December and order inflow in the second half of the current financial year will be better than the first half. Investors are particularly positive on companies that have exposure to overseas markets such as Crompton Greaves and Larsen & Toubro. Overseas orders and faster execution of orders are expected to add to operating margins of the industry players. Earnings from overseas operations hedge against rupee depreciation and also gives a broader market for the companies to operate, cutting down their dependence on one market. The domestic market is also showing signs of revival.
Stocks of most capital goods and engineering companies are seen moving up next week as investors see an uptick in order inflow. Investors are accumulating stocks of capital goods companies, expecting positive business environment after the upcoming general elections. Capital goods and engineering sector has been affected by policy bottlenecks in power projects, slowdown in public spending and sluggish industrial capital expenditure activity for almost two years now. Early sign of a change in central government is largely one of the reasons that the stocks of the sector are seeing a revival. According to exit polls, the Bharatiya Janata Party is likely to win assembly election three of five states that went to polls recently and this boosts the chance of the BJP, which is being perceived as more growth-friendly party, coming back to power at the Centre next year.
There are some signs of stabilisation. Revenue growth of the capital goods companies was flat on an average in the past quarter (Jul-Sep). That is positive considering earlier quarters were marked by a decline in profits. If the growth sustains and order inflow trend broadens for the next few quarters, policy decisions after the elections would give a positive fillip to the industry. Margins and profits of the capital goods companies will improve in the quarter-ended December and order inflow in the second half of the current financial year will be better than the first half. Investors are particularly positive on companies that have exposure to overseas markets such as Crompton Greaves and Larsen & Toubro. Overseas orders and faster execution of orders are expected to add to operating margins of the industry players. Earnings from overseas operations hedge against rupee depreciation and also gives a broader market for the companies to operate, cutting down their dependence on one market. The domestic market is also showing signs of revival.
