 "Weak factory output hits capital goods stocks; L&T, ABB India, NBCC fall")
The BSE Capital Goods Index was the worst-hit sectoral index on Monday as factory output data slipped to its lowest levels seen in 17 months.
The index of industrial production (IIP), which was reported after market hours on Friday, was down 0.5 per cent in November.
The BSE Capital Goods Index ended the day with losses of 1.9 per cent on Monday.
Among individual stocks, the construction and engineering giant Larsen & Toubro (L&T) saw the largest single-day fall seen since September 28, 2018. The company’s share price ended with losses of 2.6 per cent. ABB India (3 per cent) and NBCC India (2.2 per cent) were among the other major losers in the index.
Analysts say the slowdown in IIP number may be an indication that capital expenditure on the infrastructure side may have slowed in the last two-three months.
According to analysts, the capital goods space could see some near-term issues. Some of these issues could be related to working capital-related liquidity challenges that could arise and expectation of lower order intake in the second half ahead of the general elections.
“After a strong first half, we expect order inflows for our coverage to decline 21 per cent year-on-year (Y-o-Y) on a high base, based on order announcements until the first week of January 2019. This is because of a significant decline in new orders of L&T (ex‐services ‐40% YoY) and BHEL (‐55 per cent), which contributed 78 per cent of third-quarter 2017-18 orders,” Phillip Capital said in a recent note.
In year-to-date, the BSE Capital Goods Index is already down 5 per cent.
“Domestic orders by the government in the second half of 2018-19 look to remain muted, led by the Centre’s fiscal situation tightening as gross fiscal deficit stood at 3.83 per cent, overshooting the target of 3.3 per cent and upside risks prevail, led by the recent announcement of farm loan waivers and higher subsidies. In the nine months of 2018, new investments announced by the government have been down 32 per cent and manufacturing sector is lower by 7 per cent,” said analysts at JM Financial.
The index of industrial production (IIP), which was reported after market hours on Friday, was down 0.5 per cent in November.
The BSE Capital Goods Index ended the day with losses of 1.9 per cent on Monday.
Among individual stocks, the construction and engineering giant Larsen & Toubro (L&T) saw the largest single-day fall seen since September 28, 2018. The company’s share price ended with losses of 2.6 per cent. ABB India (3 per cent) and NBCC India (2.2 per cent) were among the other major losers in the index.
Analysts say the slowdown in IIP number may be an indication that capital expenditure on the infrastructure side may have slowed in the last two-three months.
According to analysts, the capital goods space could see some near-term issues. Some of these issues could be related to working capital-related liquidity challenges that could arise and expectation of lower order intake in the second half ahead of the general elections.
“After a strong first half, we expect order inflows for our coverage to decline 21 per cent year-on-year (Y-o-Y) on a high base, based on order announcements until the first week of January 2019. This is because of a significant decline in new orders of L&T (ex‐services ‐40% YoY) and BHEL (‐55 per cent), which contributed 78 per cent of third-quarter 2017-18 orders,” Phillip Capital said in a recent note.
In year-to-date, the BSE Capital Goods Index is already down 5 per cent.
“Domestic orders by the government in the second half of 2018-19 look to remain muted, led by the Centre’s fiscal situation tightening as gross fiscal deficit stood at 3.83 per cent, overshooting the target of 3.3 per cent and upside risks prevail, led by the recent announcement of farm loan waivers and higher subsidies. In the nine months of 2018, new investments announced by the government have been down 32 per cent and manufacturing sector is lower by 7 per cent,” said analysts at JM Financial.
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