Capital Goods Stocks Outlook for the week - 19 to 23.May.2014
Stocks
of most capital goods companies are seen down next week on profit
booking
after the initial euphoria in the market on account of the Bharatiya
Janata
Party-led National Democratic Alliance's victory in Lok Sabha polls is
seen
subsiding. Capital goods stocks were among the major gainers as a BJPled
NDA
government is seen kick-starting the depressed infrastructure and
power
sector.
The
clear mandate achieved by BJP-led NDA was largely factored in by the
market
on Friday, which resulted in profit taking in the second half of the
session.
And this profit taking is likely to spill over to the next week. Investors
are
likely to sell positions in capital goods and infrastructure major Larsen &
Toubro
and Crompton Greaves. We believe that potential for a cycle recovery
is
high but the recovery could commence only by FY17 (2016-17) given the
constraints
of fuel, land and order pipelines. We expect order activity in India
to
remain weak over the next 12 months, particularly in 1H FY15 (Apr-Sep) as
we
expect it to take 2-3 quarters for projects to start, following formation of a
new
government.