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Informist, Friday, Mar. 28, 2024

MUMBAI – Shares of companies in the capital goods sector are expected to move in a narrow range next week as private capital expenditure is unlikely to revive any time soon. The Street has ascribed very high valuations for capital goods companies on expectations of continued strong growth in investments, Kotak Institutional Equities had said in a report on Tuesday. However, there are several challenges to these investments, the brokerage said. 

Companies in the sector are now overly dependent on government capital expenditure, and it will take at least two quarters for private capital expenditure to pick up pace, Harshit Kapadia, a research analyst at Elara Capital, said. "Given the muted private investments, there might not be much appreciation in the valuations of these stocks," Kapadia said, adding "even a repo rate cut might not be a major trigger for these stocks". However, the rate cut might help some companies that have high working capital requirements, Kapadia said. Market participants are of the view that the Reserve Bank of India's Monetary Policy Committe will cut key interest rate by 25 basis points in the upcoming policy meeting outcome on Apr 9.

On the earnings front, Kapadia said capital goods companies will likely post a good performance for the March quarter due to a pick up in government capital expenditure, leading to higher order inflows. Earlier this week, the Ministry of Defence signed contracts with Bharat Forge and Tata Advanced System to procure advanced towed artillery gun systems, among others, for an aggregate amount of around INR 69 billion. "Generally fourth quarter is a good quarter as far as capital goods are concerned in both order inflow and execution terms," Kapadia said.

Recently, GE Aerospace delivered the first of 99 F404-IN20 engines to Hindustan Aeronautics for the Tejas Mk-1A, alleviating some of the concerns regarding the execution of these orders. The company is expected to post a 25% and 28% growth in revenue for 2025-26 (Apr-Mar) and FY27, ICICI Securities had said in a report Wednesday, while it upgraded the stock to 'buy' from 'add'. Commencement of the execution of Tejas Mk-1A orders might be positive for other defence companies as well, ICICI Securities had said. Recently, Larsen & Toubro's hydrocarbon business also received 'ultra-mega' order from QatarEnergy LNG. 

Siemens and Hitachi Energy India are some of the stocks that might be on investors' radar, Kapadia said. "While there is not much for investors in Siemens, people might pick the stock to get a piece of the pie of Siemens Energy." Tuesday, the National Company Law Tribunal approved the demerger of the company's energy business and the company had said it would issue one share of the demerged company for every equity share held in Siemens. Siemens has a potential upside of 5-7% from here and its valuation might align with that of GE Vernova T&D India or Hitachi, Kapadia added.

BSE Capital Goods ended Friday at 62724.28 points, down 0.2%. The sectoral index has gained 1.3% this week. Nearly half of the index constituents fell this week, with Sona BLW Precision Forgings, Schaeffler India, and Grindwell Norton down nearly 6-10%. Finolex Cables, Hindustan Aeronautics, and Thermax, on the other hand, were up around 4-9% this week. 

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* Siemens to issue 1 share in demerged co Siemens Energy India for each held

* Goldman Sachs buys 0.1% stake in Samvardhana Motherson via bulk deal

* NCLT approves demerger of Siemens' energy business into Siemens Energy India

* BHEL extends pact with US co Vogt Power for heat recovery steam generators

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* BHEL gets INR 31.14-mln demand order from Kigali Court of Appeal, Rwanda

* L&T OKs INR 120-bln debt issue, appointment of Subramanian Sarma as dy MD

* Samvardhana Motherson to invest up to INR 2 bln in arm CIM Tools

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* BHEL gets INR 75-bln order from Gujarat State Electricity Corp

* L&T bags 'large' order from Brigade Group for residential, office towers

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 Vandana Hingorani

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