BSE Capital Goods index hits fresh 52-week high; L&T, BEL gain up to 3%

Given the likely recovery in capex from public sector, multilateral funded projects and certain process industries, analysts at ICICI Securities believe, companies like L&T will be key beneficiary

The S&P BSE Capital Goods index hit a fresh 52-week high of 17,963, up 1 per cent, on the BSE on Monday on expectation of sustained growth momentum.

Earlier on December 8, the capital goods index had surpassed its previous 52-week high of 17,796 touched on January 24, 2020. In the past two months, the index has rallied 30 per cent as compared to a 13-per cent gain in the S&P BSE Sensex.

Larsen & Toubro (L&T), Bharat Electronics (BEL), Graphite India, NBCC and Lakshmi Machine Works from the index were up in the range of 2 per cent to 6 per cent on the BSE. In comparison, the S&P BSE Sensex was up 0.07 per cent at 46,131 points at 12:27 pm.

Shares of L&T, up 3 per cent at Rs 1,227 in intra-day trade, were trading higher for the eighth straight session amid expectation that awarding momentum may pick up going forward. Stock of the construction & engineering major was trading at its highest level since February 26, 2020.

L&T has received multiple orders recently such as supply of 90 units of Komatsu Mining Equipment from Coal India subsidiaries, leading infra companies engaged with the coal sector and customers from the cement and iron ore sectors. The company's construction and mining equipment business also bagged one of its biggest orders ever to supply 46 units of Komatsu mining equipment to Tata Steel.

Furthermore, the transportation infrastructure business secured another mega contract from the National High-Speed Rail Corporation Limited (NHSRCL) to construct 87.569 km of the Mumbai-Ahmedabad High Speed Rail (MAHSR) project, popularly referred to as the bullet train project. L&T Construction, the construction arm of L&T, has secured a large contract to construct India's longest road bridge across river Brahmaputra connecting Dhubri in Assam to Phulbari in Meghalaya.

On the other hand, shares of BEL were up 3.5 per cent at Rs 119.15 on the BSE, surging 22 per cent in the past one month, as against 6 per cent rise in the S&P BSE Sensex during the same period. The company has guided for double-digit growth, sustainable margins and better order inflows suggest strong performance in the medium-term.

Given the likely recovery in capex from public sector, multilateral funded projects and certain process industries, analysts at ICICI Securities believe, companies like L&T, KEC will be key beneficiaries.

In mid and small cap spaces, we prefer AIA Engineering, Engineers India and ISGEC Heavy Engineering. "Having survived the worst of the Covid-19 pandemic and lockdown-related slowdown, the macro outlook is limping back to normalcy. Public sector may continue to do the heavy lifting in terms of investments in near to medium term. However, certain segments like pharma, chemicals, electronics, emission-norm solutions; cement, energy optimisation solutions, automation, digitalisation etc. are currently in investment mode. With government’s focus on renewable energy, we believe, orders related to green energy corridors will witness finalisations and healthy executions. Thermal power capex weakness will continue, with focus shifting to renewable," the brokerage firm said in capital goods sector update.