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Informist, Friday, Feb. 07, 2024

MUMBAI – Shares of capital goods companies are likely to see a correction next week as several stocks in the sector are trading at expensive valuations at time when growth in the government capex would be muted. However, the Reserve Bank of India cutting the repo rate by 25 basis points on Friday may benefit engineering, procurement, and construction companies as they have high working capital and debt requirements, said Harshit Kapadia, an analyst at Elara Securities (India) Pvt. Ltd. 

KEC International Ltd., Kalpataru Projects International Ltd., and Transrail Lightning Ltd. could benefit due to their better positioning among the engineering, procurement, and construction companies, Kapadia said. 

Lower than expected capital expenditure allocation in the Union Budget for 2025-26 (Apr-Mar) will impact the momentum of order inflows of companies in the capital goods sector, pushing their overall earnings for the next financial year on the back seat, Kapadia said. The Budget projected the central government's capital spending for FY26 at INR 11.21 trillion, up 10% from the revised estimate of INR 10.18 trillion for FY25. However, capital goods as a sector will likely do better on both the execution-based revenue and order front in the March quarter, Kapadia added. 

Due to high valuations, stocks are likely to fall by 10-15% in the medium term and stocks should settle around one-year forward price-to-earnings multiple of 30-40, Kapadia said. On other hand, Onkar Kelji of IndSec Securities believes valuations of stocks in the sector have already come down, especially those of defence stocks.      

BSE Capital Goods index closed in the red for the second straight session in a row on Friday. The index ended at 61074.9 points, down 0.7%. The sectoral index has lost 2.4% this week. 

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* BEML Oct-Dec PAT tumbles nearly 49% YoY, sales fall around 16%

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* Abbott India Oct-Dec net profit rises 16% YoY to INR 3.61 billion

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* Titagarh Rail to start new businesses under shipbuilding, signalling systems

* KEC Intl Oct-Dec consol PAT rises 33.7% on year to INR 1.30 billion

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* Engineers India to be project management consultant for INR 12-bln project

* Usha Martin gets INR 443.87-mln tax demand from Ranchi authority

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

With inputs from Simran Rede

Edited by Akul Nishant Akhoury

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