At 01:00 pm, the S&P BSE Capital Goods index, the largest loser among sectoral indices, was down 1.8 per cent, as compared to a 0.24 per cent rise in the benchmark S&P BSE Sensex. The capital goods index hit an intra-day low of 17,212, its lowest level since September 20, 2019.
Larsen & Toubro (L&T) and Siemens from the index slipped 3 per cent each, while Thermax, Carborundum Universal and Sadbhav Engineering were down in the range of 1-2 per cent on the BSE.
Shares of L&T were down 3 per cent to Rs 1,324 on the BSE, extending its previous day’s 1 per cent decline after the Credit Suisse downgraded the stock to ‘neutral’ from outperform in the long term. It was trading below the brokerage firm's revised target price of Rs 1,460.
Thus far in November, L&T has underperformed the market by falling 10 per cent, as compared to a 2 per cent rise in the S&P BSE Sensex. The stock of construction & engineering company was trading at its lowest level since September 20, 2019.
Most companies in engineering and capital goods (ECG) universe have highlighted deteriorating macro-economic trends and strained government finances, affecting order outlook, execution challenges and working capital stress emanating from a tightened liquidity situation.
"Although L&T itself has maintained guidance on revenue and order inflow growth, we note caution from its commentary on execution challenges and working capital stress," analysts at Emkay Global Financial Services said in a sector update.
“Despite the declining growth visibility and rising challenges on working capital, we have not seen the stocks correcting much in the sector. We believe continued order inflows and execution disappointment will result in de-rating of stocks in the sector,” the brokerage firm said.
With government finances both at the centre and state levels under stress, we believe order inflow and execution/WC stress likely to continue for some time, it added.