Capital Goods Stocks Outlook for the week (02 - 06.07.2012)
rupeedesk
RUPEEDESK: Capital Goods Stocks Outlook for the week (02 - 06.07.2012)
Stocks of capital goods and engineering companies are likely to see value buying in the coming week as prices in this sector appear to have bottomed out. The rally in capital goods and engineering stocks will be lead by sector major Larsen & Toubro Ltd. Bharat Heavy Engineering Ltd, ABB Ltd, Siemens Ltd should also see an upside due to attractive valuation. Valuations of these stocks have been steadily eroding in the past one year. L&T shares lost 22%, BHEL lost 43%, Siemens declined nearly 18%, while Cummins India and ABB lost nearly 8% each. Bullish on the sector in the near term due to the valuations. However, the long-term outlook on the sector remains negative amid concern over slackness in policies, environmental clearances, fuel linkages, and stiff competition. BHEL, on the other hand, has been losing charm amid concern over overcapacity in the boiler, turbines, and generator space, and rising competition from Chinese players.
Recently, the Prime Minister's Office asked the power ministry to prepare a
fresh Cabinet note on the issue of imposing duty on import of power equipment.
This may bring respite to domestic power equipment manufacturers such as BGR
Energy Systems, BHEL, and L&T. However, the duty imposition will
have no impact on orders already awarded to overseas equipment manufacturers
for commissioning during the next 4-6 years. While we concede that the
imposition of import duty is positive for BHEL and other domestic Indian
manufacturers, it has come at a time when orders have already been placed for
capacity addition for 2013-2017.
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