Capital Goods Stocks Outlook for the week (11 - 15.06.2012)
rupeedesk
RUPEE DESK: Capital Goods Stocks Outlook for the week (11 - 15.06.2012)
Stocks of capital goods and engineering companies are likely to move in a narrow range next week before data on India's industrial production in April is released Tuesday. The performance of the country's industrial sector in the month will determine the trend in the market next week.
In March, India's
Index of Industrial Production contracted 3.5% mainly due to a sharp
contraction of 21.3% in production of the capital goods sector. Stocks of
sector majors such as Larsen & Toubro, Siemens, and Bharat Heavy
Electricals are seen rising in the near term. There was some buying in stocks
of these companies last week on market talk the Reserve Bank of India may cut
the repo rate, at which it lends to banks under its Liquidity Adjustment
Facility.
It's better to be a sceptic at this point of time. The scenario in the
capital goods and engineering sector would remain grim unless the government
starts policy reforms.
In a meeting convened by Prime Minister Manmohan Singh, the government set ambitious infrastructure sector targets for this financial year. We do not see the government meeting these targets.
In 2012-13 (Apr-Mar), the government aims to add 17,957 MW power in 2012-13--
including 2,000 MW from Kudankulam Atomic Power Project--award 9,500-km road
construction projects, and set up three greenfield
projects and two ports, among others.
The Capital goods index has underperformed the broader index by 6% over the last three months. A meaningful recovery in investment cycle has to be triggered by policy action. Till then search for bottom (in capital goods stocks) continues