Lack of valuation comfort may enhance gains in capital goods sector

Existing optimism about the capital goods sector has been enhanced by the Assembly election results, which were favourable for the BJP.

The prospects of political continuity led to renewed interest in the sector.

There are demand-supply gaps, especially in power, and visibility of improved pricing and strong order flows, including from private enterprises.

Commodity prices are still moderate due to slower global demand. The Q2FY24 results beat Street estimates.

Transmission & distribution (T&D) equipment saw a demand bounce, and L&T reported big orders in overseas hydrocarbon projects in West Asia.

Earnings and revenue visibility is good until FY26 at least,