Shares of capital goods companies are doing well as the S&P BSE Capital Goods index rose 6.4 percent to 74,550 on the BSE during intraday trade on Monday.
Notably, the index recorded its sharpest intraday rally in the past four years. Earlier, on March 26, 2020, the BSE capital goods index had risen 7.6 percent in an intraday deal.
Bharat Electronics Limited (BEL), Larsen & Toubro (L&T), Hindustan Aeronautics Limited (HAL), CG Power and Industrial Solutions, Bharat Heavy Electricals Limited (BHEL) and Schaeffler India are up between 7 and 9 percent in intra-day trade today .
Further, a strong rally in the stock markets after the exit polls for the 2024 Lok Sabha elections indicates a comfortable majority for the BJP-led NDA, led by gains in eastern and southern India and continued dominance in its traditional strongholds.
Kotak Institutional Equities expects that the ‘new’ government will continue its economic agenda of development, growth and liberalization and focus on investment-led growth, with the recent large surplus transfer from the Reserve Bank of India (RBI) putting it in will allow to increase capital investments compared to the interim budget.
The brokerage firm believes that the government will continue to focus on key areas such as affordable healthcare and housing, energy transition, infrastructure development (defence, railways and roads) and manufacturing.
Meanwhile, the IMF expects the Indian economy to grow 6.5 percent in FY25 due to the resilience of domestic demand. S&P Global Ratings expects India to remain the fastest-growing major economy over the next three years, putting the country on track to become the world’s third-largest economy by 2030, overtaking Japan and Germany.
The country’s focus on energy transition, energy efficiency and grid electrification, among others, is likely to provide more business opportunities.
The pressure on infrastructure to build roads and ports, expand the rail network and tunnels, with increasing capital expenditure, will continue to catalyze capacity expansion and maintain vibrant demand for safe and sustainable electrification solutions. Government policies, push for Digital India, data localization and classification of data centers as infrastructure assets in a fledgling industry that is flexible to adopt greener norms are all said to be driving forces behind this segment, according to ABB India.
Among individual stocks, L&T hit a new high of Rs 3,948.60, up 8 percent in intra-day trade, extending gains on strong business prospects. In the past three weeks, the share of engineering & construction (E&C) majors has increased by 20 percent. According to analysts, L&T is the best investment strategy in capital goods for largecaps. Focus on lower balance sheet intensity, restructuring of metro project and focus on cash flows will drive a revaluation of the stock.
L&T is India’s largest engineering and construction (E&C) company, with interests in engineering, procurement and construction (EPC) projects, hi-tech manufacturing and services. The company is primarily active in the infrastructure, heavy engineering, defense engineering, energy, hydrocarbons and services business segments. The infrastructure segment contributes approximately 45 percent of consolidated revenue, followed by services (30 percent) and international markets (25 percent of the backlog of international markets).
India Ratings and Research expects the consolidated order book to grow at a sustainable pace in FY25-26 due to order inflows from both domestic and international segments. Foreign orders are likely to be driven by the hydrocarbon and energy and transmission segments, especially in the renewable sector.
First print: June 3, 2024 | 11:51 am IST