Capital Goods index hits 52-week low on growth concerns; tanks 14% in Feb

BSE Capital Goods index hit a 52-week low of 55,478.03, falling nearly 2 per cent on the BSE in Friday’s intra-day trade on growth concerns. The index is trading at its lowest level since February 22, 2024. 

 

Thus far in February, the capital goods index tanked 14 per cent, as compared to the 5 per cent decline in the BSE Sensex. The index has corrected 27 per cent from its record high level of 76,271.66 hit on July 9, 2024.

 

Larsen & Toubro, Bharat Heavy Electricals (BHEL), AIA Engineering, Carborundum Universal, Elgi Equipments, Finolex Cables, GMR Airports, Timken India and Titagarh Rail Systems, from the index have hit their respective 52-week lows in intra-day trade today.

 

Before companies embark on another leg of the high-growth phase, analysts expect near-term moderation in growth.

 

An analysis of October-December quarter (Q3FY25) commentary from 25 companies, both from the covered and uncovered universe in the capital goods space done by Motilal Oswal Financial Services, indicates that the last two years were extremely good in terms of overall performance of companies, resulting in a high base for most players.

 

Macro drivers continue to remain strong from transmission & distribution (T&D), renewables, electronics, data centers, etc., while some weakness is seen in government and core private sector-related ordering.

 

Ordering was strong from areas like renewables, T&D, and urban infra, while defense, railways, and water have remained lower than last year so far. For companies like LT, KEC, KPI, and Hitachi Energy, a focus on renewables and international geographies has helped in growing order inflows. However, apart from HVDC orders, large-sized order inflows, mainly from government projects, were missing in the quarter due to delays in the order finalisation, analysts said in a sector report.

 

The brokerage firm said their preference remains for players that are able to tide through this near-term volatility with a well-balanced revenue mix, control over margins, and the ability to maintain or improve their growth profile going forward.

 

Meanwhile, Paras and Zen Tech’s management indicated that the defense order inflow in 9MFY25 has been soft, but they remain hopeful of a pick-up in inflow from Q4FY25. Additionally, they highlighted that while the road and rail capex has been flat in Q3F25, defense continues to be a strong area of focus for the government, which led to an increase in the defense budget this year.

 

The opportunity pipeline remains strong for the domestic T&D business, with Rs 50,000 crore of short-term tenders in the pipeline and longer-term pipeline of Rs 2.4 trillion. Green energy corridor, incremental transmission capex for new thermal power plants and HVDC projects all provide strong growth potential, with only 5-6 key players in the market, analysts at Kotak Institutional Equities said in the capital goods sector report. The companies remain very positive on the industry prospects and believe import substitution will be the key driver, the brokerage firm said.