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Stocks of most capital goods companies are seen extending losses in the next week as weak macro economic conditions continue to weigh on the sector making it unfavourable among investors. The Index of Industrial Production for November continued its fall at (-) 2.1% as compared to (-) 1.8% in October, according to the data release by the commerce ministry after market hours yesterday. The November IIP, which continues to be in the negative territory for the second month in a row, is extremely worrisome. What is also causing concern is the performance of the manufacturing sector, indicating that new investments are still not happening. With no near-term pick up seen in the industrial expenditure, as evident from the IIP numbers, capital goods sector is unlikely to see investor interest. However, long-terminvestors may enter stocks of capital goods companies that have a robust order book and diversified exposure, taking advantage of the ongoing price correction. Usually, Oct-Dec and Jan-Mar are expected to be strong quarters for the sector, as large government orders are finalised during this time. We expect revenue growth to be broadbased in the sector, since Oct-Apr usually signals acceleration in project execution as well as order intake. We estimate the turnover of our coverage universe to rise 15% yoy, with large companies like L&T (up 20% year on year) and Thermax (up 30% year on year) leading the pack. As the Oct-Dec earnings season draws near, long to medium term investors may pick shares of companies such as Larsen & Toubro, Voltas, Havells India and KEC International. Industry major, L&T is expected to grow at 15% year on year, while VGuard Industries Ltd is likely to grow at 20% year on year on the top line front.
Stocks of most capital goods companies are seen extending losses in the next week as weak macro economic conditions continue to weigh on the sector making it unfavourable among investors. The Index of Industrial Production for November continued its fall at (-) 2.1% as compared to (-) 1.8% in October, according to the data release by the commerce ministry after market hours yesterday. The November IIP, which continues to be in the negative territory for the second month in a row, is extremely worrisome. What is also causing concern is the performance of the manufacturing sector, indicating that new investments are still not happening. With no near-term pick up seen in the industrial expenditure, as evident from the IIP numbers, capital goods sector is unlikely to see investor interest. However, long-terminvestors may enter stocks of capital goods companies that have a robust order book and diversified exposure, taking advantage of the ongoing price correction. Usually, Oct-Dec and Jan-Mar are expected to be strong quarters for the sector, as large government orders are finalised during this time. We expect revenue growth to be broadbased in the sector, since Oct-Apr usually signals acceleration in project execution as well as order intake. We estimate the turnover of our coverage universe to rise 15% yoy, with large companies like L&T (up 20% year on year) and Thermax (up 30% year on year) leading the pack. As the Oct-Dec earnings season draws near, long to medium term investors may pick shares of companies such as Larsen & Toubro, Voltas, Havells India and KEC International. Industry major, L&T is expected to grow at 15% year on year, while VGuard Industries Ltd is likely to grow at 20% year on year on the top line front.
