K.Karthik Raja - Rupeedesk Advisory: Capital Goods Stocks

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Capital Goods Stocks Outlook for the week – 18 to 22.08.2014

Capital Goods Stocks Outlook for the week – 18 to 22.08.2014
( www.rupeedesk.in )

Stocks of most capital goods companies are seen trading firm next week, due to the price

correction that followed a weak earnings season and industrial production data.

Moreover, the government's reaffirmation of supporting infrastructure growth is expected

to further boost investor sentiment for the sector.

Larsen & Toubro, Voltas and Bharat Heavy Electrical are expected to be major gainers of

the positive sentiment. Stocks of Bharat Heavy Electricals are also expected to see some

positive movement next week after the stock saw some correction in price following

weak Apr-Jun results. BHEL has corrected after the numbers (Apr-Jun results) and IIP and is near its support level so a bounce back is possible.

Capital Goods Stocks Outlook for the week – 11 to 14.08.2014

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Stocks of capital goods companies are next week seen tracking the wider market, which

is seen weak due to global developments in West Asia and Russia. However, they may

see some reversal in sentiment mid-week on value buying. While the market is bullish on

infrastructure and capital goods companies in the long run, there might be some

correction.

Investors will eye Apr-Jun earnings of engineering major Siemens and Voltas that will be

detailed on Wednesday. The Indian arm of Germany's Siemens AG is seen posting a net

profit of 1.04 bln rupees against a loss of 488 mln rupees year ago. Net sales are seen at

27.72 bln rupees, up 7% on year.

Larsen & Toubro is also seen weak in the short term. First support for its shares is seen at 1,420 rupees while strong support is seen at 1,380 rupees.

Capital Goods Stocks Outlook for the week – 11 to 14.08.2014

( www.rupeedesk.in )

Stocks of capital goods companies are next week seen tracking the wider market, which

is seen weak due to global developments in West Asia and Russia. However, they may

see some reversal in sentiment mid-week on value buying. While the market is bullish on

infrastructure and capital goods companies in the long run, there might be some

correction.

Investors will eye Apr-Jun earnings of engineering major Siemens and Voltas that will be

detailed on Wednesday. The Indian arm of Germany's Siemens AG is seen posting a net

profit of 1.04 bln rupees against a loss of 488 mln rupees year ago. Net sales are seen at

27.72 bln rupees, up 7% on year.

Larsen & Toubro is also seen weak in the short term. First support for its shares is seen at 1,420 rupees while strong support is seen at 1,380 rupees.

Capital Goods Stocks Outlook for the week – 07 to 11.Jul.2014

Capital Goods Stocks Outlook for the week – 07 to 11.Jul.2014

Stocks of capital goods companies are seen gaining next week, tracking the wider market,
as the market expects the government to unleash reforms aimed at reviving growth in the
general Budget on Jul 10. Any anti-dumping duty on imported power equipment, if
announced in the Budget, will be positive for companies such as Larsen & Toubro and
Bharat Heavy Electricals.

Further, a higher spending in defence and railways will be a boon for sector majors such as
L&T, Bharat Electronics, and KEC International. We expects the government to extend the
current import duty on power equipment to imported power transmission and distribution
(T&D) equipment as well as continue or extend investment allowance on plant and
machinery capital expenditure.

Providing investment allowance or introducing similar proposals to stimulate economic
revival could provide significant boost for improving corporate capex across industries,
thereby reviving order inflow traction in the capital goods sector. We also see the
government to hike defence spending, augmenting railway infrastructure and undertake
power sector reforms.

Power transmission, alternative energy (esp. solar), railways & urban infrastructure are
areas which could see favourable announcements (leading to demand revival). Any
announcements on manufacturing & Infra sector could also benefit in demand revival for
capital goods companies.

Capital Goods Stocks Outlook for the week – 23 to 27.06.2014

(www.rupeedesk.in)

Stocks of capital goods companies are seen rangebound with a positive bias next week.

However, the sector could be impacted if overall market sentiment takes a hit on account

of the conflict in Iraq. Another factor influencing the market will be the rise in freight

cost.

Citing concerns over the Indian Railway's financial situation, the government yesterday

increased passenger rail fares by 14.2% and freight rates by 6.4%, effective Jun 25.

While this may negatively impact shares of cement, mining, metal, oil and gas, fertiliser,

and logistics companies the move may translate into long term gains for capital goods

companies that have exposure to railway business such as KEC International, and Larsen

& Toubro.

Although the hike in fares and freight rates will impact inflation, the move is a positive

because it will help improve the financial situation of Indian Railways. With the help of

policy support, timely bureaucratic decision making and improving investor confidence,

the domestic capex cycle (which may have bottomed out in 2013) should strengthen in

the future.