Foreign portfolio investors (FPIs) are doubling down on India’s capital goods sector. The optimism is driven by the strong growth in the order book and revenue visibility of the sectoral stocks, primarily driven by the Centre’s capex and infra push across roads, railways, defence and power sectors.

As per latest data, FPIs have made a net investment of over ₹29,000 crore in the capital goods sector between April and September. The second highest cumulative inflows in the current fiscal after financial services, which received nearly ₹52,000 crore during this period. 

Capital goods stocks refer to those companies that are engaged in the manufacturing, distribution, and supply of machinery and equipment that are used in diverse industries for the manufacture of products. The growth of capital goods companies, thereby, are closely linked to the performance of other sectors like infrastructure, manufacturing and construction. Companies like ABB India, KEC International and Carborundum Universal are examples of capital goods stocks 

Prabhudas Lilladher said it expects the capital good companies to report healthy performance in Q2FY24 owing to strong opening order books, continued execution momentum, favourable product mix and better demand/orders/volumes from domestic as well as key export markets. According to the broking firm, the order intake reported by the capital goods companies under its universe has jumped to ₹1.14-lakh crore in Q1FY24 against ₹68,300 crore in the same fiscal last year. 

“Order inflows are likely to be strong in Q2FY24 owing to substantial order wins announced by companies across segments like power transmission & distribution, water, hydrocarbon, railways, defence, energy efficiency along with uptick in private capex,” Prabhudas Lilladher said.

Private capex

Emkay Global also said the order momentum for the engineering, capital goods and infra sector continued with 40 per cent y-o-y growth during April-August 2023. However, it also added that fresh project announcements during April-September (till September 25, 2023) declined by 15 per cent y-o-y due to lesser announcements by the private sector. “While announcements by the government have seen 33 percent y-o-y growth, the private sector’s announcements saw a decline of 37 per cent y-o-y.” 

Nuvama Institutional equities also said private capex may experience some delay in ordering as exports are under clear risk due to fears of global slowdown. “After a significant uptick in order inflows over the last 12–18 months, all eyes are on execution and margin expansion as we continue to see robust inflow of orders led by public capex,” it added.  

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