Capital Goods Stocks
Outlook for the week – 16 to 20.06.2014
(www.rupeedesk.in)
Trading in most stocks of capital
goods is seen range-bound with a negative bias next
week on account of profit-booking as
business orders for the sector continue to remain
muted. Ordering activity continued to
remain limited only to PSUs (public sector
undertakings); order finalisation
from private sector players continues to remain elusive.
Investors are most bearish on stocks
of Bharat Heavy Electricals, stocks of which have
seen a steep rise in the run-up to
the elections and after the results that saw the Modiled
government take office.
We believe the rally in the stock is
overdone as the impact of various measures
announced or proposed on BHEL would
be limited in the near term. The structural
issues with the sector and even with
respect to BHEL still persist and we don't expect a
fast turnaround in the company. Other
Stocks, such as capital goods and infrastructure
major Larsen & Toubro, are also
seen erasing the gains they had accumulated in the
past few weeks. Yesterday, L&T
stocks ended at 1,685.95 rupees, down 2%, on the
NSE.
Similarly, most analysts remain
neutral on electrical equipment maker Crompton
Greaves. Crompton Greaves stock is
pricing in a bullish scenario where the overseas
power segment margins revert to the
historical peak of 9% achieved in FY11 (vs. -0.4%
in 2013-14). Valuations are close to
pre-GFC (global financial crisis) peak, but the bull
argument is that earnings have not
normalised yet and a cyclical recovery would
translate into high earnings growth momentum.
