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Informist, Friday, Jan. 24, 2024

MUMBAI – Capital goods sector is likely to see stock-specific action in view of December quarter earnings. Among the major players in the sector, Larsen & Toubro will report its quarterly earnings on Thursday.

Market participants will look out for post-earnings commentaries on order book and capital expenditure guidance by the managements to take a call on the stocks in sector, an analyst with a global brokerage firm said. However, capital expenditure in the private sector has been notably slow and is likely to remain subdued for the next six months, the analyst said.

Market recovery may depend on enhanced government capital spending. While the capital allocation for the present financial year is expected to be INR 9.5 trillion against the Budget estimate of INR 11 trillion, the government should earmark INR 11.5 trillion to INR 12 trillion capital outlay for the next financial year, in order to lift market spirit, the analyst said, and added that anything below INR 11 trillion will be taken as a disappointment.

Recently, the defence ministry rejected L&T's bid to supply submarines, the analyst said. L&T, which is scheduled to declare its earnings for the December quarter on Thursday, will likely report a consolidated net profit of INR 36.72 billion and revenue of INR 658.53 billion, according to the average of estimates from nine brokerage firms.

Apart from the anticipation around the upcoming Union Budget, the stocks may also react to the earnings. Talking about valuations, the analyst said the valuations of ABB India and Siemens look attractive as they have been through corrections. Both the stocks are down over 10% from the closing price on Dec. 31. However, market participants will watch out for ABB India's outlook for its short-cycle business and Siemens' orderbook for the December quarter, which the analyst said is expected at nearly INR 58 billion.

Talking about the power-generation segment, the analyst said Kirloskar Oil Engines has likely cut prices of power generators by 3-4%, complying with the new pollution norms. However, Cummins India likely maintained prices during the quarter, the analyst said, as per his channel checks findings. The growth in sales of low-horse power generators is expected to remain weak, while the sales growth of medium horsepower segment has stabilised, the analyst said.

Stocks in the capital goods sector are witnessing a double-bottom pattern, Ganesh Angaj, a technical analyst at NVS Brokerage said. The double-bottom pattern represents a major change in trend. The 'W' shaped pattern represents a rebound, another drop to the same or similar level as the original drop, and finally another rebound.

The BSE Capital Goods index Friday closed at 62231.16, down 1.9% from the previous close, with most of the stocks ending in red. The index was down 4.5% from the closing of the previous week and down 8.2% from the closing of the previous month. 

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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 Ashish Shirke

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