Order inflow guidance, investment pickup vital for capital goods firms

With government capex growth moderating, investors will track Q3 order inflows and management guidance for signs of a private investment pick-up in capital goods

For the past several years, the capital goods sector has relied on government orders and overseas business, while the domestic private sector investment has been flat. As the Budget draws near, consensus is that public sector allocations are unlikely to see substantial increases in FY27. Geopolitical tensions apart, global economic activity is muted so a big exports pickup is unlikely. However, the export outlook seems positive for L&T, and other engineering procurement & construction or EPC companies.

 

Private capex follows consumption with a lag. If consumption strengthens in H2 FY26, private capex will pick up by H2 FY27. The macro of low inflation, rate cuts is supportive. New technologies like electronics manufacturing, renewable energy (RE) storage, solar photovoltaic cells, electric vehicles (EVs) and green hydrogen are focus areas along with data centres.

 

New private investments in metals, mining, cement, and oil and gas look unlikely with these industries operating at around 70-75 per cent capacity utilisation and expansion projects already in progress. Raw material costs for copper, aluminium and zinc have risen, which will impact margins.

 

Investors will analyse Q3FY26 results, order flow and guidance for signs of a pickup in private sector investments. Under the circumstances, selective exposure to capital goods seems the best stance.

 

After an annual growth of 24 per cent over FY19-24, central government capex expenditure moderated to 11 per cent Y-o-Y in FY25. In H1 FY26, central capex grew 40 per cent Y-o-Y due to the low base of H1 FY25. Base effects are normalising in H2 FY26. Assuming 8 per cent Y-o-Y nominal growth in central capex in FY27, the focus may remain on infrastructure, RE, and railways. Defence allocations could be enhanced by 8-9 per cent with the capex in defence budget at about 25-30 per cent (27 per cent in FY26).

 

Order inflows for most large capital goods companies (excluding L&T) declined Y-o-Y in Q3FY26. Defence inflows also dropped though that was influenced by base effect. The Q3FY26 results may be fairly strong for capital goods, with revenues to see low double-digit growth, or maybe more if consumer electricals have good performance.

 

Major capital goods companies (excluding L&T) have cumulative orders worth ₹32,400 crore in Q3FY26, which is down Y-o-Y. The order inflow was in power generation, transmission & distribution (T&D) and engineering procurement & construction (EPC). Inflows from defence declined 50 per cent Y-o-Y to ₹9,900 crore due to the base effect of HAL bagging a ₹13,500 crore order in Q3FY25. Capital goods orders rose 12 per cent Y-o-Y to ₹22,530 crore. Adjusted for base effect, defence orders rose.

 

At the company level, ABB India’s revenue may grow 9 per cent Y-o-Y due to strong execution in the electrification segment. Siemens’ revenue may rise by 12 per cent Y-o-Y. Thermax and Cummins may see revenue rise by 6 per cent Y-o-Y. KEI Industries could see a jump of 25-30 per cent in revenue on demand in cables & wires (C&W) and rising copper prices which have led to price hikes. KEC International’s revenue may grow by mid-teens Y-o-Y, due to transmission and distribution T&D business.

 

In defence, Bharat Dynamics’ revenues may rise 16 per cent Y-o-Y and Garden Reach Shipbuilders & Engineers’ revenue may rise 32 per cent Y-o-Y given the inherent lumpy nature of ship delivery. Bharat Electronics and HAL are likely to see high single-digit or low double-digit revenue growth.

 

The consumer electricals, durables, and electronics segments may see mid-teens Y-o-Y sales growth in Q3FY26, led by electronics, with room air conditioner (RAC) companies likely to see moderate sequential recovery in Q3. Kaynes Technology may see a big revenue jump of 45-50 per cent and Polycab could also see 25-30 per cent revenue spike due to cable and wire demand. Dixon and Havells may see low double-digit growth.

 

L&T may be well placed to capitalise in RE, thermal, overseas hydrocarbon, and defence. CG Power is also likely to see strong earnings gains, given demand from railways, and the new revenue stream of Outsourced Semiconductor Assembly and Testing (OSAT). Hindustan Aeronautics (HAL) has a big order backlog but execution is key. GE Vernova T&D seems well-placed to cash in on the T&D capex cycle and rising exports.