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Improving margins signal capital goods cycle in early stages of revival

Signs of renewed capex and improving margins; high inflation, supply-chain disruptions and black-swan events among risks

Capital goods
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The sector still faces key challenges such as high inflation, supply chain disruptions and black-swan geopolitical risks. These could damage exports

Devangshu Datta
The capital goods industry is usually a laggard in the business cycle. By definition, a recession or downcycle results in surplus capacity.

Industries don’t opt for capex (capital expenditure) until there’s enough recovery to give some confidence about demand expansion.

Profit expansion in the last two years was largely due to cost cutting. It’s only now that many corporates are seeing the possibility of top lines rising above pre-Covid levels after three muted financial years.

There are signs of renewed capex but it's early days. Many capital goods majors are highly-valued. However, in a cyclical industry, it is possible that

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First Published: Aug 24 2022 | 10:09 PM IST

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