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Trade in stocks of capital goods companies is seen mixed next week, with investors likely to favour Crompton Greaves and Bharat Heavy Electricals, while booking profits in Larsen & Toubro. We pointed out that even though the stocks of the sector rallied last week riding on sentiment of revival, there have been no major investments in actuality in the last two years. The investment cycle in capital goods sector is seen picking up gradually with complete revival expected only in 2015-2016. There are orders flowing from central and state power distribution companies. However, the power generation sector still faces a negative growth. The segment is important for capital goods. If revival is slow there, capital goods sector is directly affected. The enthusiasm in the stock market regarding capital goods sector is primarily due to low valuations, which will see investors resorting to profit booking especially in the case of L&T. Some stocks like Crompton Greaves and BHEL are seen benefiting from the anticipation of a BJP-led government assuming power at the Centre. Investors feel that a BJP-led government will fuel industrial growth and may fast track pending approvals for major power generation projects. Additionally, investors are also banking on companies that have strong overseas business such as L&T and Crompton Greaves. In Jan-Mar, L&T secured new orders worth around 22.5 bln rupees from West Asia, while Crompton Greaves recently announced an order win in Paraguay, and 2-mln-euro order from Ukraine.
The domestic demand may see revival in the near future, but the trigger for growth of capital goods players will still be exports. Therefore, investors see exposure to overseas market as a positive. Stocks of engine and generator maker Cummins are also seen extending gains on pick up in seasonal buying of generators. Going into FY15 and FY16, the export story for Cummins is expected to play well. The low horsepower engines, which they are now manufacturing at their Fulton plant, will see decent growth from around 4 bln rupees to 10 bln rupees by FY16.
Trade in stocks of capital goods companies is seen mixed next week, with investors likely to favour Crompton Greaves and Bharat Heavy Electricals, while booking profits in Larsen & Toubro. We pointed out that even though the stocks of the sector rallied last week riding on sentiment of revival, there have been no major investments in actuality in the last two years. The investment cycle in capital goods sector is seen picking up gradually with complete revival expected only in 2015-2016. There are orders flowing from central and state power distribution companies. However, the power generation sector still faces a negative growth. The segment is important for capital goods. If revival is slow there, capital goods sector is directly affected. The enthusiasm in the stock market regarding capital goods sector is primarily due to low valuations, which will see investors resorting to profit booking especially in the case of L&T. Some stocks like Crompton Greaves and BHEL are seen benefiting from the anticipation of a BJP-led government assuming power at the Centre. Investors feel that a BJP-led government will fuel industrial growth and may fast track pending approvals for major power generation projects. Additionally, investors are also banking on companies that have strong overseas business such as L&T and Crompton Greaves. In Jan-Mar, L&T secured new orders worth around 22.5 bln rupees from West Asia, while Crompton Greaves recently announced an order win in Paraguay, and 2-mln-euro order from Ukraine.
The domestic demand may see revival in the near future, but the trigger for growth of capital goods players will still be exports. Therefore, investors see exposure to overseas market as a positive. Stocks of engine and generator maker Cummins are also seen extending gains on pick up in seasonal buying of generators. Going into FY15 and FY16, the export story for Cummins is expected to play well. The low horsepower engines, which they are now manufacturing at their Fulton plant, will see decent growth from around 4 bln rupees to 10 bln rupees by FY16.
