Capital Goods Stocks Outlook for the week: 01.10.2012 - 05.10.2012

[rupeedesk]

Stocks of most capital goods and engineering companies are likely to move in line with the market next week due to lack of sector-specific triggers. Post the recent gains, there could be profit booking in stocks of some companies in the sector. In the past three weeks, stocks of Larsen & Toubro, Bharat Heavy Electricals, and Thermax have raised 14-25% in anticipation of reforms by the government to boost the sector. The National Stock Exchange's 50-share Nifty rose around 6.3% in the period. Although the debt restructuring of state electricity boards is a step in the right direction, it would not be enough to resolve the problems of the power sector. The restructuring will improve the health of state electricity boards but may not lead to additional order inflow for transmission and distribution equipment manufacturers in the near term. State electricity boards are unlikely to take up any meaningful capital expenditure in the near term due to the financial restructuring.

The success of the restructuring would depend on states' willingness to accept the terms and conditions of the proposal. Due to the restructuring, state electricity boards are unlikely to give new orders for the next two-three quarters. Outlook on the power sector is likely to remain bearish until general elections in 2014 as no major reforms for the sector are expected before that.

By RUPEE DESK

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