Capital goods and engineering: Early indications of bottoming of cycle

Orders are improving, cost inflation and supply chain issues are among potential headwinds

The capital goods and engineering sector is often a laggard in cyclical terms. These businesses are working capital intensive, and relatively long-gestation. Orders come in only when there’s significant corporate investment, which happens only when corporates are confident of strong future demand.

The order book for Indian engineering and capital goods firms may be due for improvement. There’s more order inflow. But there are headwinds in the form of inflation hitting raw material and finished goods costs, and also supply chain issues in vital areas such as semiconductors.

Operating margins for some companies dipped in Q3, 2021-22 but this sector