Capital goods stocks underperform in current year

MUMBAI: Capital goods stocks, represented by the BSE Capital Goods Index, have lost 11.07% in CY2013. In the same timeframe BSE Sensex, a barometer of the broader market, has lost 0.4%. Larsen & Toubro accounts for 58% of the BSE Capital Goods index and is the largest stock in the index. It has lost 11.10% in the current year. BHEL another heavyweight with 13% weight in the index has lost 12.48% in the current year.

The sector is hit badly due to poor order flows on account of various impediments faced by power projects, such as delay in getting clearances by ministry of environment and forests, land acquisitions, coal shortage. The capital goods players have seen margins going down due to excess competition in the bidding process. The sector may continue to remain under margin pressure, as there is no immediate trigger visible.

“We are cautious on the Indian capital goods sector amid concerns over the power sector, high competitive intensity, marked by lower margins and valuations,” says Rupesh Sankhe, analyst – capital goods, Karvy Stock Broking in his recent note. He has a sell rating on BGR Energy and ABB India. He recommends buying into BHEL with a target of Rs 253.