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Informist, Friday, Sept. 5, 2025

MUMBAI – Capital goods companies are expected to move in a range next week on concerns that the government is shifting its focus to improving consumption, which may hit capital expenditure plans in the coming years. While the cuts in goods and services tax announced late Wednesday are positive for the economy, analysts said private companies may not begin capital expenditure until they see clear signs of improved demand.

"We believe that, despite an expected pickup in consumption in India, manufacturers are likely to assess the sustainability of demand before committing to significant capex," Aniket Jain, lead analyst covering the capital goods sector at YES Securities, said in a note. Further, uncertainty over demand due to higher tariffs by the US has also forced corporates to keep their capex plan on the back burner for now.

Analysts are concerned that the government has likely underestimated the impact of shifting to lower GST rates. The government said it expects a revenue loss of INR 480 billion after cutting GST rates, but some analysts said the government has not accounted for the loss due to the removal of compensation cess. Nirmal Bang Institutional Equities said the actual loss to the government is likely closer to INR 2 trillion on an annual basis. This has raised concerns that the government may have to control its spending in the coming years to make up for the loss in revenue due to lower GST and the income tax benefits announced in the Budget. 

For the first four months of 2025-26 (Apr-Mar), the government's capital expenditure was INR 3.47 trillion, up almost 33% from the year-ago period, as per data on the Controller General of Accounts' website. "... government capex growth in the coming year is unlikely to exceed single digits and could potentially turn negative to offset tax losses," Jain of YES Securities said.

For now, analysts have not revised their estimates for companies due to GST cuts, but they intend to revisit their estimates once festivals give an indication of the impact on demand in the economy. Initial expectations suggest that some capital goods companies are likely to save on costs due to the lower GST on certain engine parts and fuel pumps. Some defence companies are expected to benefit from lower GST on critical equipment and components, including aircraft parts and drone parts. 

However, the BSE Capital Goods index has not moved much since plans of GST cuts were first announced by Prime Minister Narendra Modi. Since Modi's Independence Day speech on Aug. 15, the sectoral index has gained only 0.3%. This week, the sectoral index gained over 2% with Kaynes Technologies rising over 12%, SKF India up nearly 10%, and Astral up 7%. Among others, Honeywell Automation India was down nearly 8% this week.

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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 Anshul Choudhary

Edited by Saji George Titus

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