Capital Goods Stocks Outlook
Seen up on likely margin expansion ahead
This story was originally published at 18:55 IST on 16 August 2024
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MUMBAI - Shares of capital goods companies are expected to rise going forward as the June quarter earnings have largely been positive for the sector with margin expansion seen across businesses. However, expensive stock valuations may limit the upside.
"Raw material prices have come down to the levels seen in 4Q (Jan-Mar), which may provide support to margins for the next two quarters," a research analyst with a foreign brokerage house said. "This quarter, we saw gross margin expansion for product-based as well as EPC (engineering, procurement, and construction) companies."
Moital Oswal Financial Services said execution of capital goods companies was above expectations in the June quarter. "Ordering activity is expected to see a healthy pick-up 2HFY25 (Oct-Mar) onward, as enquiries are expected to translate into firm orders," the brokerage said.
Although earnings are likely to be healthy going forward, a large part of those earnings are priced in stock valuations, analysts said. Kotak Institutional Equities, in a note today, said several companies in capital goods, defence, and railways sectors are trading at "unfathomable" valuations. The BSE Sensex rose 0.4% this week, taking its overall gains in the last 52 weeks to over 67%. In comparison, the Nifty 50 has risen 26% and the Nifty Midcap 150 has gained over 50% in the past 52 weeks.
TOP HEADLINES
* Kalpataru Projects buys 4 mln shrs of arm for nearly 1 bln rupees
* KNR Constructions Apr-Jun PAT rises 21.4% on year, sales fall 5.3%
* EID Parry Apr-Jun consol net profit falls 16% on year, sales fall 4%
* L&T arm to buy 15% additional stake in JV Larsen & Toubro (Oman)
* HEG gets notice for recovery of 2.82 bln rupees of GST refund
* HEG Apr-Jun PAT falls 97% YoY, sales fall 15%
* MTAR Tech Apr-Jun consol PAT falls 78.2% on year, sales down 15.9%
* Samvardhana Motherson Apr-Jun consol PAT up 65.5% at 9.9 bln rupees
* SKF India Apr-Jun net profit up nearly 3% YoY to 1.59 bln rupees
* Cummins India board appoints Shveta Arya as MD designate
* AIA Engg Apr-Jun consol net profit falls 4.7% YoY to 2.6 bln rupees
* Voltas Apr-Jun consol PAT more than doubles on yr to 3.34 bln rupees
* Siemens Apr-Jun net profit rises over 25% YoY to 5.31 bln rupees
* L&T arm completes acquisition of 100% stake in SiliConch Systems
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:
| Company | Price | Week-on-week change in % | Resistance | Support |
| Bharat Heavy Electricals | 296.55 | (-)1.90 | 302.90 | 286.20 |
| CG Power and Industrial Solutions | 715.45 | 0.30 | 731.70 | 687.00 |
| Larsen & Toubro | 3568.35 | (-)0.70 | 3608.70 | 3512.90 |
| Siemens | 7188.70 | 4.30 | 7363.30 | 6975.50 |
| Thermax | 4377.00 | 0.50 | 4499.00 | 4249.00 |
| S&P BSE Capital Goods | 72847.57 | 0.40 | 73663.20 | 71328.50 |
| Nifty 50 | 24541.15 | 0.70 | 24795.90 | 24077.10 |
| S&P BSE Sensex | 80436.84 | 0.90 | 81298.80 | 78875.70 |
End
Reported by Anshul Choudhary
Edited by Tanima Banerjee
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