 "Capital goods soars 6%, records sharpest intra-day rally since March 2020")
Shares of capital goods companies are on a roll, as the S&P BSE Capital Goods index rallied 6.4 per cent to 74,550 on the BSE in Monday’s intra-day trade.
Notably, the index recorded its sharpest intra-day rally in over past four years. Earlier, on March 26, 2020, the BSE capital goods index had surged 7.6 per cent in intra-day deal.
Notably, the index recorded its sharpest intra-day rally in over past four years. Earlier, on March 26, 2020, the BSE capital goods index had surged 7.6 per cent in intra-day 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 have rallied between 7 per cent and 9 per cent in intra-day trade today.
Further, a strong rally in equity markets after the Exit polls for the 2024 Lok Sabha elections suggest a comfortable majority for the BJP-led NDA, led by gains in East and South India and continued dominance in its traditional strongholds.
Kotak Institutional Equities expect the ‘new’ government to continue with its economic agenda of development, growth and liberalisation and focus on investment-led growth, with the recent large transfer of the Reserve Bank of India (RBI) surplus enabling it to increase capex versus the interim budget.
The brokerage firm believes that the government will continue its focus on key areas such as affordable healthcare and housing, energy transition, infrastructure development (defense, railways and roads) and manufacturing.
Meanwhile, the IMF expects the Indian economy to grow by 6.5 per cent in FY25 following resilience in domestic demand. S&P Global Ratings expects India will remain the fastest-growing major economy for the next three years, putting it 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 electrification of networks, among others are likely to provide more business opportunities.
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The infrastructure push to build roads, ports, expand railway network, tunnels, with increased capital expenditure outlay will continue to catalyse capacity expansion and keep a buoyant demand for safe and sustainable electrification solutions. The government policies, push on Digital India, data localisation and classification of data centres as infrastructure assets in a young industry flexible to adopt greener norms would all be drivers of this segment, according to ABB India.
Among the individual stocks, L&T hit a new high of Rs 3,948.60, soaring 8 per cent in intra-day trade, extending its gain on strong business outlook. In past three weeks, the stock of engineering & construction (E&C) engineering major has surged 20 per cent. According to analysts, L&T is the best capex play in largecap capital goods space. Focus on lower balance sheet intensity, restructuring of metro project and focus on cash flows will drive rerating for the stock.
L&T is India’s largest engineering and construction (E&C) company, with interest in engineering, procurement, and construction projects (EPC) projects, hi-tech manufacturing and services. The company primarily operates in infrastructure, heavy engineering, defence engineering, power, hydrocarbon, services business segments. Infrastructure segment contributes around 45 per cent to consolidated revenue followed by services (30 per cent) and international markets (25 per cent of backlog from international markets).
India Ratings and Research expects the consolidated order book to grow at a sustainable pace over FY25-FY26 due to order inflows from both domestic and international segments. Overseas orders are likely to be driven majorly by the hydrocarbon and the power & transmission segments, especially in the renewable sector.