Capital Goods index hits over 6-year low; L&T down 51% in 2-months

Analysts anticipate some amount of weakness on the execution front in H1FY21 due to current challenges in manpower movement.

Shares of engineering and capital goods companies were under pressure on Wednesday with the S&P BSE Capital Goods index hitting an over six-year low as the outbreak of coronavirus (Covid-19) outbreak, analysts say, may hit the infra capex worse than 2008 crisis.

At 10:18 am, the S&P BSE Capital Goods index, the top loser among the sectoral indices, was down 2.7 per cent at 9,641, as compared to a 0.16 per cent decline in the S&P BSE Sensex. The capital index hit an intra-day low of 9,499, its lowest level since February 18, 2014 on the BSE.

In the past two months, the S&P BSE Capital Good index has tanked 46 per cent, as against a 36 per cent decline in the benchmark index. Larsen & Toubro (L&T), Bharat Forge, Bharat Heavy Electricals Limited (BHEL), NBCC, HEG and Graphite India from the index were down in the range of 51 per cent to 65 per cent during the period.

Analysts at Dolat Capital anticipate some amount of weakness on the execution front in H1FY21 due to current challenges in manpower movement. Further, the closure of government offices may also impact and defer the order awarding and finalizations.

“After the 2008 crisis, the recovery was very swift, driven by continued private capex until FY12-13. The government’s ability to spend on the infrastructure at that time was much better (both Centre and states). However, today, the fiscal situation for both the Centre and states is already worsening and continued funding of infrastructure capex will be a challenge,” analyst at Emkay Global Financial Services said in sector update.

While the stocks have corrected sharply recently in the engineering and capital goods sector, we believe that the investors should wait before dabbling in the sector, given the continued uncertainty on infra capex growth, which is further worsened by the Covid-19 impact, the brokerage firm said.

“A fortnight back, an external supply chain disruption (China/Iran/Europe) risk was fairly modest from L&T’s perspective, however a potential local outbreak (and government response to contain it) may disrupt business and weigh on core business earnings growth; the timing of the outbreak around the busiest month (March) in a fiscal does not help either,” analysts at JP Morgan said in stock update.

COMPANY	LATEST	1-MTH BEFORE	LOSS(%)
GRAPHITE INDIA	109.05	255.50	-57.3
HEG	440.60	963.35	-54.3
KALPATARU POWER	177.00	359.80	-50.8
FINOLEX CABLES	173.20	349.45	-50.4
BHARAT FORGE	240.15	465.15	-48.4
NBCC	15.60	29.40	-46.9
LARSEN & TOUBRO	669.60	1242.40	-46.1
B H E L	19.55	33.90	-42.3
GMR INFRA.	15.55	25.55	-39.1
HONEYWELL AUTO	21881.00	34247.25	-36.1
LAK. MACH. WORKS	2052.00	3202.20	-35.9
HIND.AERONAUTICS	473.30	713.60	-33.7
SKF INDIA	1335.55	1950.25	-31.5
GRINDWELL NORTON	417.00	601.25	-30.6
BHARAT ELECTRON	58.80	82.45	-28.7
THERMAX	701.75	959.90	-26.9
SIEMENS	1026.00	1382.20	-25.8
V-GUARD INDS.	152.00	204.25	-25.6
HAVELLS INDIA	482.00	643.95	-25.2
AIA ENGG.	1335.10	1765.35	-24.4