Capital goods firms say recovery a year away

Engineering companies do not agree with stock market bets on a recovery of the industry in six to eight months.

Capital goods stocks rallied nearly 16 per cent since January on purchases by foreign institutional investors and in anticipation of a change of government at the Centre. The benchmark Sensex rose 4.37 per cent over the same period.

Yet capital goods companies say the situation is the same as last year and there are no big investments or orders.

"It is too early to celebrate,'' said M S Unnikrishnan, managing director of Thermax, an energy and environment engineering company. He pointed out that no major investments had taken place in the last two years. He is hopeful the investment cycle will turn by November but a revival will be seen only in 2015-2016.

"There are opportunities from both central and state power distribution companies. The central sector has more high-technology opportunities. Unfortunately, power generation and industry face negative growth. These two segments are, for the moment, in a wait-and-watch mode,'' said Rathin Basu, managing director of power transmission company Alstom T&D India Ltd.

The Indian arm of Swiss-Swedish engineering major ABB, too, sees no green shoots of revival. “Power generation projects are struggling despite five-year plan targets. The transmission segment is doing marginally better. Any growth in the second half of the year will most likely revolve around renewable energy,” said Subir Pal, head of marketing and strategy at power and automation company ABB India Limited. ABB is looking to tide over the rough patch with orders that can be executed within a year.

The stock market’s optimism about the capital goods sector is influenced by low valuations. Industry heavyweights like Bharat Heavy Electricals Ltd and Larsen & Toubro were trading at historical lows, which led to some buying. Also, long-term investors like pension funds have began to accumulate capital goods stocks, market analysts pointed out.

“The pace of order finalisation got traction in February 2014, led by big orders in ports and power generation,” said Satyam Agarwal of Motilal Oswal Securities, a brokerage. The revival is visible only among public sector undertakings as private companies face a funds crunch.