The Hindu Business Line : Capital goods stocks hog the limelight

The infrastructure boom in the country has propelled institutional investors to take important positions in engineering, power and infrastructure stocks, which make up the capital goods index.

The BSE capital goods index has shown 6.85 per cent rise on a week-on-week basis to 13,246.71), thereby outpacing the BSE Sensex, which grew by 5.22 per cent in the same period.

Capital goods stocks are fundamentally sound, as most of them have order books full for the next two years, according to Mr Lalit Thakkar, Director Research, Angel Broking.

Infrastructure spends in India are expected to top $470 billion during the 11th five-year plan against the previous estimate of $320 billion.

Market sources believe that both domestic and foreign institutional investors have shown faith in the infrastructure story of the country, even when markets across the globe were tanking.

“Even when bears were on rampage, investors were willing to bank on frontline capital goods scrips as they promised certainty of growth and profits,” said Mr V.K. Sharma, head of research, Anagram Stockbroking.

The prospects of entering these stocks at cheap valuation ensure that there is value buying even in a falling market.

“With the markets swinging upwards, investors are again strengthening their positions from a long-term perspective,” said Mr Nalin Shah, Director, NVS Brokerage.

Companies manufacturing capital goods are less affected by unfavourable global cues such as the sub-prime crisis, making it one of the more insulated sectors in the Indian economy.

Moreover, the rising rupee, which has been eating into the earnings of capital goods exporters for the first half of the current year, has also shown signs of cooling down.

The rupee has slid from its nine-year high of 40.29 against the dollar as on July 23 to 41.16 today, thereby cheering sentiment.

FII holdings in capital goods companies are anywhere between 15 per cent and 25 per cent, while domestic institutional investors have 15-20 per cent exposure, said an analyst with a Mumbai-based brokerage firm.

Among the stocks that witnessed strong gains during the last one week are ABB (8.32 per cent), Alstom (10.72 per cent, Areva T&D (12 per cent), BEML (7.42 per cent), Bharat Electronics (5.42 per cent), Bharat Heavy Electricals (11 per cent), Crompton Greaves (9.96 per cent), SKF (10.37 per cent), L&T (8.56 per cent) and Punj Lloyd (8.85 per cent). However, Suzlon Energy dropped by 4.2 per cent and Siemens dipped marginally 0.42 per cent.

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