Capital goods index surges 30% on buoyant order-book

Riding high on accelerating infrastructure spends and strong order books, capital goods companies led by heavyweight Larsen & Toubro (L&T), Bharat Heavy Electricals (BHEL), ABB and Siemens posted one of their best performances on the bourses this calendar year, bucking a trend of lacklustre growth by auto, IT and other key sectors.

The BSE Capital Goods Index rose by a robust 30 per cent during the first six months of this year (Jan-Jun 22), beating all other sectoral and benchmark indices in the same period by a big margin. The bellwether BSE Sensex rose by just 4.62 per cent (from 13,827.77 to 14,467.36) in the same period.

The BSE Auto, which comprises Hero Honda, Bajaj Auto and Maruti Udyog, posted a negative 14.25 per cent growth this calendar year, while the BSE IT Index, whose constituents include Infosys Technologies, TCS, Wipro and Satyam, fell by 8.18 per cent during the first six months of this calendar year.

"These (capital goods) companies are sitting on huge order books. Since India is a power-scarce country and the prime minister has set a target of 2,00,000 mw by 2012, this sector is set to become one of the most productive sectors of the economy. Infrastructure is one of the main areas of concern of our government and it will further boost the growth of this sector," said Umesh Karne, an analyst at Emkay Stocks & Shares.

The biggest gainer in the sector was L&T, whose shares rose by over 50 per cent from Rs 1,400 to Rs 2,107 this year. BHEL, after a liberal bonus, was trading at Rs 1,440.15 and ABB shot up by nearly 27 per cent from Rs 3,735 to Rs 4,730.70.

Strong order books across companies providing earnings visibility and more predictability for metal prices, ensuring stable margins, meant a positive outlook for the sector, said an analyst at brokerage Batlivala & Karani.

The data for IIP (Index for Industrial Production) released last month, which showed a growth of 13.6 per cent, also confirms that the manufacturing sector is on a high-growth path, resulting in higher demand for the capital goods companies, say analysts.

Shares of Crompton Greaves rose by 25.6 per cent this year, while Siemens gained by 17.01 per cent to Rs 1,342.15.

During the January-June 22 period, the BSE FMCG Index, constituted by biggies Hindustan Unilever and ITC, shed 6.14 per cent.

But, decent gains were posted by the BSE Metal Index (up 18.55 per cent) and the BSE Bankex (up 10.47 per cent) this year.