BSE Capital Goods index nears record high; Siemens, L&T gain up to 3%

Analysts at Emkay Global Financial Services uphold their constructive view on the sector, driven by its strong tender pipeline, softening commodity prices and expectation of good order inflow growth.

The S&P BSE Capital Goods index gained over 1 per cent, and inched towards its all-time high on strong growth outlook. Siemens, Larsen & Toubro (L&T), CG Power & Industrial Solutions, Hindustan Aeronautics (HAL), Elgi Equipments and Schaeffler India from the index were up in the range of 1 per cent to 3 per cent on the BSE in Tuesday’s intra-day trade.

At 10:32 AM; the S&P BSE Capital Goods index was the top gainer among sectoral indices, up 1.2 per cent, as compared 0.37 per cent rise in the S&P BSE Sensex. The capital goods index hit an intra-day high of 35,427.37, and quoted near its record high level of 35,537.68, touched on December 15, 2022.

During October-December quarter (Q3FY23), capital goods companies delivered a healthy performance aided by strong execution with strong order inflows. While supply chain disruptions, higher freight cost and higher commodity prices continued to impact margins, the favourable impact of recent commodity price correction brings in the much-needed relief, going forward.

Management commentary across businesses was positive on demand outlook, especially on domestic front amid progressive Union budget FY24E wherein government proposes to spend Rs 10 trillion (up 33 per cent YoY) as capex with tangible multiplier effect that could potentially drive broad based economic growth domestically. Encouragingly, growth capex was bundled with path of fiscal consolidation.

As companies almost resumed to pre-pandemic levels amid demand and execution coming back to normal, we expect Q4FY23E to see a normalised topline performance. Order tendering momentum expected to be strong and lumpy in FY23E as bunched up orders in key sectors like power T&D, green energy corridor, railways, MRTS, renewables, water, infrastructure, etc, likely to be awarded, analysts at ICICI Securities said in Q3FY23 earnings wrap.

Meanwhile, in the last three months (Nov-22 to Jan-23), overall ordering grew by 37 per cent/32 per cent on YoY/4-year CAGR bases. Excluding roads (sharp decline YoY due to base period having the Rs 250 billion of Ganga Expressway order), ordering saw a 90 per cent YoY growth, analysts at Emkay Global Financial Services said in capital goods sector report.

Fresh project announcements during 9MFY23 (April to December) have grown by 53 per cent YoY, on the back of strong growth in Manufacturing (55 per cent), Electricity (64 per cent) and Infrastructure (51 per cent). Mining was the only sector that saw a decline YoY.

Overall, the brokerage said it uphold their constructive view on the sector, driven by its strong tender pipeline, softening commodity prices and expectation of good order inflow growth. Risks include delay in order finalization and States missing the budgeted capex, it added.

Among the individual stocks, Siemens hit a new high of Rs 3,303, as it rallied 3 per cent in intra-day trades today. In past three months, it has surged 17 per cent, as against 0.38 per cent decline in the S&P BSE Sensex.

Analysts at Prabhudas Lilladher remain positive on Siemens from a long-term perspective given its strong and diversified presence across industries, focus on digitization and automation products, product localization, strong balance sheet, healthy public & private capex, focus on cost efficiencies and recent large order wins in mobility business.