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Informist, Friday, Jan. 10, 2025

MUMBAI – Shares of capital goods companies may experience volatility as market participants try to assess the extent of the shortfall in spending by the government in the current financial year. Analysts are also concerned about the capital expenditure outlay for the next year, and whether it would be higher than the outlay in the Budget for 2024-25 (Apr-Mar).

While analysts remain concerned about government spending in the March quarter, they see a possibility of a slight increase in capital expenditure in the upcoming Union Budget in February.

Capital goods stocks are not expected to fall amid hopes of higher capital expenditure by the government in FY26. Higher raw material prices might affect the margins of these companies for the December quarter, an analyst with a domestic brokerage said. The analyst said one should expect negative surprises in this earning season as both government spending and project execution were down during the reporting quarter.

Companies in the sector will continue to show revenue growth for the December quarter, but margins are likely to be flat, the analyst said. "You won't see a performance like you saw in the year-ago quarter," the analyst said, adding that margins may fall in the March quarter as well if there is no uptick in capital expenditure.

Another analyst from a foreign brokerage had a different view on the sector. He said Larsen & Toubro Ltd. was likely to achieve 10% on-year growth in order inflows for FY25, and KEC International Ltd. and Kalpataru Projects International Ltd. are likely to have orders worth INR 250 billion and INR 210 billion, respectively, for the reporting quarter.

The analyst said the transmission and distribution segment has been driving sentiment for the sector, as it is 'the hot theme'. While there won't be any major projects or orders for railway coaches and locomotives in the medium term, there may be some Vande Bharat packages coming up.

While Cummins India Ltd. and Siemens Ltd. are at relatively better valuation as compared to their peer companies and have upside potential, Hitachi Energy India Ltd. looks fairly expensive from a medium- to long-term perspective, the analyst with the domestic brokerage said.

The BSE Capital Goods index fell 5.8% this week to 64232.65 points, down 1.7% from Thursday's close. The sectoral index has ended in the red for the entire week, except Tuesday, when it closed 1.1% higher.

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Following are the resistance and support levels for the stocks for next week as per calculations by Informist based on their prices on the National Stock Exchange:

End

Reported by Aman Aryan

Edited by Rajeev Pai

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