Motilal Oswal bullish on capital goods sector this week; check stock picks

Motilal Oswal sector of the week: The capital goods sector is riding a multi-year upcycle driven by public capex and energy transition imperatives

Capital goods stocks: The Indian capital goods sector continues to remain in focus, buoyed by healthy order inflows, strong government capex, and sustained traction in core segments such as transmission & distribution (T&D), renewables, and defence. While private sector capex remained subdued in the March quarter of the previous fiscal year (Q4FY25), commentary suggests that an uptick may unfold in the coming quarters.

 

Sector performance was strong across key metrics. Profitability remained robust, with multiple large and mid-sized players reporting results ahead of expectations in Q4FY25. Ebitda margins for most product companies held firm, supported by operating leverage and favorable order mix. While execution challenges remain in some EPC verticals due to legacy projects, margin expansion is anticipated as the backlog clears. On the order side, momentum surprised positively in segments like international renewables and domestic T&D, resulting in robust inflows and a healthy prospect pipeline. The energy transition theme is driving demand across India and export geographies such as the GCC, Europe, and the Americas.

 

 

Government capex continues to act as the backbone of sectoral momentum. Central capex reached an all-time high of ₹2.4 trillion in March 2025 and ₹1.6 trillion in April 2025, indicating front-loaded investments in FY26. Aggregate state capex also grew 22 per cent year-on-year (Y-o-Y) in FY25, reaching a three-year high. This sustained public investment is supporting order books in defence manufacturing, power transmission, and transport infrastructure. Notably, new defence procurement pipelines, HVDC grid expansion, and green hydrogen infrastructure are offering incremental growth opportunities.

 

Looking ahead, visibility remains strong. Export potential is rising, with defence, turbines, and transmission players tapping into global demand. Margins are expected to sustain or improve across most sub-segments due to improved pricing, favorable product mix, and scale benefits. However, any acceleration in private sector ordering—especially from core infra, industrial, and process industries—would be a key upside trigger. The sector remains structurally well-positioned amid India's infrastructure thrust, energy transition focus, and supply-chain localisation initiatives.

 

In conclusion, the capital goods sector is riding a multi-year upcycle driven by public capex and energy transition imperatives. As private investment revives, the sector is set to maintain its growth momentum in FY26 and beyond. 

Motilal Oswal stock recommendations: Capital goods stocks to buy

 

Cummins KKC | Share price target: ₹4,060

 

Cummins India delivered a strong FY25 performance, with net profit up 15 per cent Y-o-Y and revenue crossing ₹10,000 crore, supported by robust domestic demand and improving exports. The Powergen and Industrial segments posted healthy growth of 14 per cent and 28 per cent Y-o-Y, respectively, aided by CPCB 4+ adoption and broad-based infrastructure activity. The distribution business also remained resilient, growing 14per cent Y-o-Y on higher aftermarket and warranty revenues. With a debt-free balance sheet, strong cash flows, and leadership in emission-compliant technologies, Cummins is well-positioned to benefit from rising localization, infrastructure capex, and global recovery.

 

Kirloskar Oil | Share price target: ₹1,150

 

Kirloskar Oil Engines is well-positioned to deliver strong growth, driven by its strategic focus on high-margin segments like HHP, exports, and B2C distribution. With key issues from earlier quarters resolving and genset demand stabilising, the company is poised for margin expansion. A large upcoming industrial order further enhances visibility. We model an 18 per cent/19 per cent Ebitda/PAT CAGR over FY25–27 with a 70bp margin improvement, reflecting strong operational leverage. KOEL's continued investments in product innovation, distribution strength, and export markets reinforce its long-term growth outlook.

     

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Discalimer: This article is by Motilal Oswal Financial Services Research desk. Views expressed are their own