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Informist, Friday, Aug 9, 2024

MUMBAI - The unwinding of yen carry trades that rocked global markets earlier this week is a risk for Indian stocks in the capital goods sector as well, an analysis by Elara Securities showed. This takes prominence at a time when valuations remain expensive for several stocks in the sector, putting these at a risk of decline due to profit booking.

Earlier this week, global markets fell sharply after appreciation in the yen pushed investors to unwind their trades. A carry trade is a strategy where investors borrow from markets with low interest rates and a stable currency, such as Japan, to fund investments in higher-yielding assets globally.

Elara Securities said the capital goods sector in India has total yen-denominated investments of $1.46 bln, unrealised profits of 107%, and has seen inflows of $537 mln since January 2023. Overall, India's yen denominated assets have risen 251% to $21 bln from $6 bln in January 2023, it said. Of these investments, Elara said it could identify industry-wise exposure only for investments adding up to $14 bln.

In reaction to the report, a head of research with a top domestic brokerage house said certain mid-caps may be looking at deeper corrections if calculations by Elara are right.

As far as Apr-Jun earnings are concerned, analysts are content with healthy execution shown by several companies in the sector. However, expensive valuations, driven by strong domestic inflows, remain a deterrent. The BSE Capital Goods fell 1.3% this week, with shares of Thermax and Rail Vikas Nigam falling over 12% on a weekly basis. Suzlon Energy was the top gainer among the sectoral index's constituents and rose 7% this week.

Going forward, investors await the final few Apr-Jun earnings with Hindustan Aeronautics, PNC Infratech and SKF India set to report their results next week.

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* IRCON Intl Apr-Jun sales fall 17% YoY, PAT rises 9.2%
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* Varroc Engg Apr-Jun consol PAT rises 0.5% YoY to 324.06 mln rupees
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* Suzlon Energy to buy 76% stake in Renom Energy for 6.6 bln rupees
* Cummins India Apr-Jun PAT rises 33% YoY to 4.2 bln rupees
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* RITES, HUDCO sign MoU for consultancy projects, services in infra
* IPO Alert: Diffusion Engineers gets SEBI approval for fresh issue
* BEML net loss narrows YoY to 700.3 mln rupees in Apr-Jun
* Samvardhana arm to buy 34% shr in Motherson Auto for 2.37 bln rupees
* HEG board to meet on Aug 13 to consider stock split

Following are the resistance and support levels for the sector's key stocks for next week, as per calculations based on their prices on the National Stock Exchange:

End

Reported by Anshul Choudhary
Edited by Vidhi Verma

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