)
Shares of capital goods companies gained up to seven per cent on the BSE on Monday. The BSE Capital Goods index was the top gainer among sectoral indices, moving up 2.9 per cent as compared to the S&P BSE Sensex that surged 0.6 per cent, a record high of 22,765. Larsen and Toubro (L&T), Bharat Heavy Electricals Ltd (BHEL), AIA Engineering, Suzlon Energy, VA Tech Wabag and Pipavav Defence from the capital goods space rallied between three and seven per cent each.
The up move in most of these stocks of late has been on the back of optimism among foreign institutional investors (FIIs). They have been accumulating these scrips on expectations that the policies of the new government at the Centre would help kick-start investment/capex cycle.
The BSE Capital Goods index, as a result, has been the largest gainer among sectoral indices, rallying nearly 21 per cent from December 2013-end. The benchmark S&P BSE Sensex has gained 7.5 per cent during the same period.
Among individual stocks, FIIs have increased their stake in cyclical high-beta plays like L&T, BHEL, Crompton Greaves, ABB India, Thermax and AIA Engineering by up to 100 basis points (bps) in the March quarter. As a result, except BHEL and Thermax, the remaining stocks have rallied between 19 and 45 per cent since January. “In case the election outcome is favourable, we expect a lot of foreign money to come in. However, it is hard to say which sectors will attract more flows or incremental flows. Even if no new money comes in, I expect sectoral churn in favour of cyclical,” says Harshad Patwardhan, executive director and head of equities, JPMorgan Asset Management.
Stocking on blue-chips
In L&T, FIIs increased their holding to 18.47 per cent in the March quarter from 17.85 per cent at the end of the December 2013 quarter.
In the past six months, they have raised their stake in the country’s largest engineering and construction firm from 15.25 per cent as on September 30. Since then, the stock has seen a strong run-up on the bourses, rallying nearly 68 per cent as against 17 per cent rise in benchmark indices.
In Crompton Greaves, FIIs have raised their stake by nearly 100 bps to 19.32 per cent from 18.5 per cent and in state-owned BHEL to 16.14 per cent from 15.63 per cent in December quarter. However, most analysts suggest an economic recovery/turnaround will be a gradual process and investors should not be impatient.
“We think over the next two–three years, the economy would show a revival and the equity markets would reflect the same. L&T, Cummins, Thermax and KEC International are our stock recommendations in the capital goods space,” says Amisha Vora, joint managing director, Prabhudas Lilladher Group.
