At least five stocks from the capital goods space have surged more than 1,000% in the past 10 years. According to market watchers, the National Manufacturing Policy, liberalisation of FDI norms and continuous focus on infrastructure development have boosted the capital goods and industrial sector.
With a rally of 1,736% in the past decade, Timken India emerged as the top gainer in the BSE Capital Goods index. It was followed by Bharat Electronics (up 1,587%), Grindwell Norton (up 1,282%) and Honeywell Automation (up 1,259%).
Sharing his views on the outperformance of the capital goods sector, Alok Agarwal, Head-Quant and Fund Manager, Alchemy Capital Management said, “Over the past decade, several reforms and schemes in India have contributed significantly to the growth of sectors such as consumer durables, industrials, capital goods, and real estate.”
He added that the industrial and capital goods also benefitted from the implementation of Goods and Services Tax (GST). “Industrial and capital goods firms now find it simpler to conduct business thanks to a number of initiatives aimed at improving the business climate, including the simplification of regulations, the reduction of bureaucratic red tape and the improvement of the legal framework,” Agarwal said.
Data further highlighted that players such as Praj Industries, V-Guard Industries, Carborundum Universal, Schaeffler India, Finolex Cables, ABB India, Siemens, Kalpataru Projects International, SKF India and Bharat Forge also gained somewhere between 500%-1,000% during the same period. On the other hand, the BSE Capital Goods index gained 361% in the past 10 years.
According to CARE Ratings, double-digit growth in net sales was witnessed in 11 of the select 21 sectors in FY24, and it included sectors such as aviation, automobile, cement, capital goods, infrastructure, realty, hospitality, and white goods, among others. Robust sales momentum in capital goods, cement and infrastructure can be attributed to the strong public capex push of the government. Demand has remained relatively buoyant for the capex-related sectors. Dikshit Mittal, Fund Manager & Senior Equity Research Analyst, LIC Mutual Fund Asset Management is positive on capital goods, consumer discretionary, export and auto sectors.
“India is experiencing an increase in capex. Companies present across the value chain in power generation and transmission, data centres, real estate, and renewables are expected to perform well. Capex aimed at new capacity creation can create jobs,” Mittal said adding ‘China plus one’ strategy adopted by developed nations can trigger long-term growth in Indian exports. Export-oriented companies may make a strong come-back soon after global destocking and logistic issues subside.
With elections around the corner in several major global economies including the USA, market analysts believe that one should watch out for the likely stand of the US FED and other central banks. “Incremental re-rating in PSU, capital goods, infrastructure, defence and railways looks unlikely given stretched valuations until policy clarity emerges,” brokerage Prabhudas Lilladher said in a report.