Capital Goods Stocks Outlook for the week (18-22.06.2012)
rupeedesk
RUPEE DESK: Capital Goods Stocks Outlook for the week (18-22.06.2012)
Stocks of capital goods and engineering companies, in early trade on Monday, are likely to track the broad market, which in turn will take cues from the outcome of elections in Greece on Sunday. Investors will also keenly watch the Reserve Bank of India's mid-quarter monetary policy review on Monday for direction.
Thermax Managing Director M.S. Unnikrishnan told that he expects the RBI to cut
the repo rate by 25 basis points, along with 100-basis points cut
in cash reserve ratio. He said there is a cash crunch in the Indian economy and
the RBI needs to cut CRR to make more money available to banks.
After release of dismal index of industrial production data earlier this
week, we believe a pro-industry policy stance by the government and the
RBI is a prerequisite to revive growth in the Indian capital goods and
engineering industry.
The 16.3% degrowth in capital goods dragged down IIP growth by 2.3% barring
which IIP growth would have recorded 2.4% growth. We expect Larsen & Toubro
Ltd as their favourites in the capital goods and engineering space.
While we assume a gradual uptick in the overall investment sentiment, policy
initiatives remain a key risk to our call. We retain L&T as our top pick in
the industrials space and expect it to outperform over the next 12-15 months on
the back of an overall industrial demand recovery.
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