The Hindu Business Line : BHEL, Larsen &Toubro drag Capital Goods index

The BSE Capital Goods index on Wednesday was hit badly, as the index shed more than 300 points from its previous close. A total of eleven stocks declined and only four stocks advanced today in the Capital Goods index.

Amongst the major losers were heavyweights Bharat Heavy Electricals Ltd (BHEL) and Larsen & Toubro (L&T), which were also two of the worst performing scrips among the 30 Sensex stocks. BHEL shed 4.12 per cent and closed at Rs 1,783.75, while L&T dipped 2.44 per cent to close at Rs 2,986.50.

The other capital goods stocks that took a beating at the bourses today were ABB Ltd (1.62 per cent), BEML (2.52 per cent), Bharat Electronics (6.11 per cent), Suzlon Energy (1.22 per cent) and Punj Lloyd (2.06 per cent).

Strong demands

“Since morning, we have witnessed heavy selling in the counters of both BHEL and L&T. The reason why the capital goods sector has taken quite a bit of a beating could be because the valuations of the stocks in this sector are quite high. The stocks in this sector did see quite a bit of a run up in the recent past on the back of strong demands. And now the investors feel that these scrips have become rather expensive, which has led to profit booking,” said Mr Alex Mathew, Head- Research Centre, Geojit Financial Services Ltd.

Marketmen say that due to their valuations being high, there has been quiet a bit of selling happening in this counter, especially by the institutions.

“The buzz in the market is that there has been a lot of selling coming from the FIIs, as they want to reduce their exposure to this sector,” said Ms Anita Gandhi, Head Institutional Business, Arihant Capital Markets Services Ltd.

Order books

“There also seems to be a slowdown in this sector, as the there has been a fall in the demand by clients of these companies, who seem to be putting their orders on hold due to high interest rates,” said an analyst with a brokerage. Mr Prashant Bhansali, Director, Mehta Equities Ltd, said as the order books of these companies have been booked for the next two years, the companies haven’t been able to take in any fresh orders, which has led to quite a bit of selling in this counter.

With all of these reasons, the broking houses seem to be advising their clients to go short on the capital goods stocks for the time being. “A while back, we strongly recommended capital goods scrips to our clients. But now with the slowdown in the sector, we have asked our clients to churn their portfolios. We have basically asked them to go long on sectors like IT and oil, while staying cautious of scrips in sectors such as cement, capital goods and metal,” said the sub-broker with a brokerage.

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