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Informist, Friday, Mar. 7, 2025

MUMBAI - The near-term outlook for capital goods stocks seems negative with foreign portfolio investors continuously selling their equity investments in the sector even though the stocks have seen a correction over the past few weeks, analysts said. In February, FPIs net sold shares worth INR 44.64 billion of capital goods companies, according to data available on the National Securities Depository. The sell-off slowed in the second half of February, with FPIs posting net sales of shares worth INR 12.58 billion of these companies. However, in the long term, the sector will continue to post a healthy revenue growth fuelled by continuous investments in the end-user markets.

"After a strong compounded annual growth rate of around 20% over the last three years, the industry is anticipated to grow at a healthy rate of around 13-15% over the next two to three years despite the high base," ICRA said in a press release earlier this week. The rating agency has assigned a positive outlook to the capital goods sector. The margins of companies in the sector are expected to rise, with median operating profit growth of 16-18% in the financial year 2025-26 (Apr-Mar), even after seeing robust growth in the past three or four years, ICRA said.

"The order book position of the ICRA sample set (of) companies is at all-time high levels and is growing at a healthy pace with a CAGR of around 19%, amounting to INR 141,000 crore (INR 1.41 trillion) as on September 30, 2024," Girishkumar Kadam, senior vice-president and group head, corporate ratings, ICRA, said in a press release. "Moreover, the budgetary allocation for the government capex (capital expenditure) has been enhanced to INR 11.2 lakh crore (INR 11.2 trillion) for FY2026, which, along with planned capacity additions in the cement, steel, oil and gas sectors, is likely to keep the order book position elevated." 

With capacity addition in renewable and thermal generation, the power sector remains a key end-use industry for capital goods. The sector is expected to make a capital expenditure of INR 25 trillion over the next five-year period, ICRA said. The capital expenditure in the cement sector looks robust, with the sector estimated to add more than 40 million tonnes per annum in FY26. In addition to these, refinery capacity expansion and growth in real estate and infrastructure are likely to provide a fillip to the capital goods industry, ICRA said.

However, given the lower-than-expected growth in government spending going forward, stocks might see some correction till companies detail their earnings for the March quarter. The capital expenditure allocation in the Union Budget for FY26 was lower than expected. The Budget projected the central government's capital expenditure for FY26 at INR 11.21 trillion, up 10% from the revised estimate of INR 10.18 trillion for FY25.

The BSE Capital Goods index closed Friday at 58911.86 points, up 0.5%. The index is up 6.6% on week. Most constituents in the index rose Friday. All major capital goods stocks rose over the week, with Bharat Electronics, Siemens, and CG Power and Industrial Solutions up in double digits on week.

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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 Akshay V. Johnson
Edited by Rajeev Pai

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