Capital goods on a bull run

STOCK REPORT

Buoyed by huge order books, rising demand for power and construction equipment, the Bombay Stock Exchange's capital goods index, which tracks capital goods companies such as ABB, Siemens, Punj Lloyd, and Alstom Projects, outperformed the benchmark Sensex and other sectoral indices in the last four weeks.

The capital goods index rose by nearly 10 per cent in the four weeks from May 18 to June 18. In comparison, the Sensex rose by 0.98 per cent in the same period. The BSE auto index lost nearly 5 per cent while the Bankex went up by about 1.86 per cent during the same period.

The FMCG index, which tracks companies such as Hindustan Lever and ITC, was up by 4.53 per cent, the oil & gas index up by 1.92 per cent, the PSU index by 2.95 per cent and the tech index by 0.02 per cent.

Though some of the sectors have gained, they are quite small compared with the capital goods sector. Analysts said this bull run would continue for the capital goods sector on the back of a robust economic growth, accelerating infrastructure spend and rising capex of companies.

The IIP(Index for industrial production), which stood at 13.6 per cent last month, was itself an indicator of the frenetic pace at which the manufacturing sector was growing, they pointed out.

Stocks of companies like Kalpataru Power Transmission Company (up 10.8 per cent to Rs 1,356), Asian Electronics (up 34.7 per cent to Rs 764.80), BEML (up 12.35 per cent to Rs 1,158.60), Punj LLoyd (up 31.1 per cent to Rs 236.45) and Thermax (up 21.3 per cent to Rs 500) have performed incredibly well.

Umesh Karne, an analyst from Emkay Stock Broking said: "These companies are sitting on huge order books. Since India is a power scarce country and as Prime Minister Manmohan Singh has set a target of 2,00,000 mega watts by 2012, this sector is set to become one of the most productive sectors in the economy. Infrastructure is one of the main areas of concern of the government and it will further catalyse the growth of this sector."

Analysts are not only bullish on this sector but they are also of the view that investors can take long positions in these stocks.

The past few days have seen the Sensex witnessing extreme volatilty. It has gone as high as 14,544 and even sunk below the 14K mark. Though all sectors have bore the brunt of this volatile phase, including the capital goods sector, it has tried to sustain its bull run.