Capital goods sector turns a winner

Capital goods stocks were on a roll during the week on expectations of increase in infrastructure spending by the UPA government to boost growth. The Bombay Stock Exchange’s (BSE) capital goods index closed at its 52-week high at 12,922.44 on Friday, thus outperforming the Sensex in the current week. The index gained 8.4 per cent compared to 3.3 per cent rise in the Sensex during the week.

Larsen and Toubro, BHEL, Bharat Electronics, Crompton Greaves, Areva T&D and Alstom Projects closed at one-year high, while Bharat Earth Movers, Thermax, Suzlon Energy and LMW gained more than 10 per cent during the week.

Since the election results were declared on May 18, the capital goods index has gained 49 per cent against a 24 per cent rise in the Sensex.

According to a CLSA report, privatisation of infrastructure should gather pace – a positive for developers and equipment suppliers. There are more opportunities in roads, airports, power, railways and ports for private project developers.

BHEL closed at Rs 2,287.40, up 5 per cent against the previous week’s close of Rs 2,174.90. It is likely to be the biggest beneficiary of the new government’s focus on infrastructure. Power projects, which were in advanced planning stage, will no longer get delayed because of the change in government.

Larsen and Toubro, gained 8 per cent, from Rs 1,405.60 to Rs 1,519.30 during the week. The company will benefit from the power sector development. The company has signed agreements with a number of global majors for joint ventures for nuclear power opportunity.