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Stocks of most capital goods companies are likely to continue trading with a negative bias next week as profit booking is expected to continue in the absence of near term positives for the sector. The rally of capital goods stock in December was not sustainable as there are no key positives for the sector in the near term. Fundamental issues of sluggish industrial capex, low demand from power sector and weak capital formation in the economy need to improve for the sector to do well. Long-term investor may bet on stocks of capital goods companies, which have a robust order book and diversified exposure. However, the recent rally in stocks of the sector has pushed valuations to a peak, making it unprofitable for investors to enter the stocks.
Higher exposure to international orders, which traditionally offer lower margins as compared to domestic projects, higher debt and increasing working capital pressure are some of the negatives for stocks of L&T in the short term. With the power sector still waiting to see the actual impact of recent spate of reforms undertaken by the government, investors are also seen bearish on stocks of boiler turbine generator makers such as Siemens, ABB and Alstom, among others.
Stocks of most capital goods companies are likely to continue trading with a negative bias next week as profit booking is expected to continue in the absence of near term positives for the sector. The rally of capital goods stock in December was not sustainable as there are no key positives for the sector in the near term. Fundamental issues of sluggish industrial capex, low demand from power sector and weak capital formation in the economy need to improve for the sector to do well. Long-term investor may bet on stocks of capital goods companies, which have a robust order book and diversified exposure. However, the recent rally in stocks of the sector has pushed valuations to a peak, making it unprofitable for investors to enter the stocks.
Higher exposure to international orders, which traditionally offer lower margins as compared to domestic projects, higher debt and increasing working capital pressure are some of the negatives for stocks of L&T in the short term. With the power sector still waiting to see the actual impact of recent spate of reforms undertaken by the government, investors are also seen bearish on stocks of boiler turbine generator makers such as Siemens, ABB and Alstom, among others.
