Capital Goods Stocks Outlook for the week – 16 to 20.06.2014

Capital Goods Stocks Outlook for the week – 16 to 20.06.2014

(www.rupeedesk.in)

Trading in most stocks of capital goods is seen range-bound with a negative bias next

week on account of profit-booking as business orders for the sector continue to remain

muted. Ordering activity continued to remain limited only to PSUs (public sector

undertakings); order finalisation from private sector players continues to remain elusive.

Investors are most bearish on stocks of Bharat Heavy Electricals, stocks of which have

seen a steep rise in the run-up to the elections and after the results that saw the Modiled

government take office.

We believe the rally in the stock is overdone as the impact of various measures

announced or proposed on BHEL would be limited in the near term. The structural

issues with the sector and even with respect to BHEL still persist and we don't expect a

fast turnaround in the company. Other Stocks, such as capital goods and infrastructure

major Larsen & Toubro, are also seen erasing the gains they had accumulated in the

past few weeks. Yesterday, L&T stocks ended at 1,685.95 rupees, down 2%, on the

NSE.

Similarly, most analysts remain neutral on electrical equipment maker Crompton

Greaves. Crompton Greaves stock is pricing in a bullish scenario where the overseas

power segment margins revert to the historical peak of 9% achieved in FY11 (vs. -0.4%

in 2013-14). Valuations are close to pre-GFC (global financial crisis) peak, but the bull

argument is that earnings have not normalised yet and a cyclical recovery would

translate into high earnings growth momentum.

Capital Goods Stocks Outlook for the week – 09 to 13.Jun.2014

Capital Goods Stocks Outlook for the week – 09 to 13.Jun.2014

(www.rupeedesk.in)

Most stocks of capital goods are seen trading up taking cues from the broader market

next week as investor are seen building long positions in anticipation of the government

reviving the infrastructure and power sectors.

Investors are seen taking long positions on Crompton Greaves and Larsen & Toubro

owing to significant upside seen in the stocks. CGL (Crompton Greaves) is favourably

placed to capitalise on the emerging opportunities.

The restructuring pain is behind us and now the market is looking ahead to positive

developments in the domestic environment where the power and industrial sectors could

pick up. Similarly, capital goods and infrastructure major L&T is also a favourite

In the bull market phase. L&T has been able to demonstrate its superiority with respect to

orders, execution and profitability within the Indian capital goods space.

With likely improvement in external environment in next 12-18 months, L&T is a mustown

stock among India's large cap companies. Other favourites are consumer durables

such as Voltas, Blue Star as well as boiler-turbine-generator Bharat Heavy Electricals.

Capital Goods Stocks Outlook – 26 to 30.May.2014

Capital Goods Stocks Outlook – 26 to 30.05.2014

(www.rupeedesk.in)

Next week, investors are likely to remain bullish on most capital goods sector stocks,

especially those catering to power sector, in the anticipation that the new central

government may announce policy for revival of power sector. We are positive on L&T

due to improvement in macro-economic parameters and potential uptick in the

investment cycle, the new government having to carry on the process initiated by its

predecessor, also given growth imperative and market feedback and limited downside in

valuations with the stock trading at 15 times (core earnings).

Despite the positive sentiment in the market regarding capital goods, most companies in

the sector are seen reporting lower-than-last year profits. Capital goods and infrastructure

sector major L&T will detail their Jan-Mar earnings on May 30. First resistance for the

shares of the company is seen at 1,560 rupees, while the second is seen at 1,600 rupees.

Among the other company's detailing Jan-Mar earnings next week are electrical

equipment maker Crompton Greaves, power distribution infrastructure maker Kalpataru

Power Transmission, Thermax and consumer goods company Voltas.

Capital Goods Stocks Outlook for the week - 19 to 23.May.2014

Capital Goods Stocks Outlook for the week - 19 to 23.May.2014

Capital Goods Stocks Outlook for the week - 19 to 23.May.2014

(www.rupeedesk.in)

Stocks of most capital goods companies are seen down next week on profit

booking after the initial euphoria in the market on account of the Bharatiya

Janata Party-led National Democratic Alliance's victory in Lok Sabha polls is

seen subsiding. Capital goods stocks were among the major gainers as a BJPled

NDA government is seen kick-starting the depressed infrastructure and

power sector.

The clear mandate achieved by BJP-led NDA was largely factored in by the

market on Friday, which resulted in profit taking in the second half of the

session. And this profit taking is likely to spill over to the next week. Investors

are likely to sell positions in capital goods and infrastructure major Larsen &

Toubro and Crompton Greaves. We believe that potential for a cycle recovery

is high but the recovery could commence only by FY17 (2016-17) given the

constraints of fuel, land and order pipelines. We expect order activity in India

to remain weak over the next 12 months, particularly in 1H FY15 (Apr-Sep) as

we expect it to take 2-3 quarters for projects to start, following formation of a

new government.