Capital goods sector to stay soft in H1, recovery seen in H2FY27 on thermal orders: Report

New Delhi: India's capital goods and power equipment sector is likely to remain subdued in the first half of FY27, with recovery expected in the second half, while a multi-year thermal power ordering cycle is likely to provide strong visibility to power equipment manufacturers, according to a report by 360 ONE Capital.

The report said order inflows remained strong, rising 19.2 per cent year-on-year, supported by continued momentum in private capital expenditure.

Demand was broad-based across sectors such as infrastructure, residential real estate, quick commerce, mining, food and beverages, pharmaceuticals and data centres, indicating healthy investment activity.


Several companies reported strong revenue growth, driven by robust demand for electrification equipment. However, some engineering, procurement and construction (EPC) companies continued to face challenges due to the ongoing conflict in the Middle East, with those having greater exposure to the region being more affected.

EBITDA and profit after tax (PAT) grew 2.2 per cent and 12.8 per cent year-on-year, respectively. Lower interest costs, supported by deleveraging, helped PAT grow at a faster pace than EBITDA.

However, EBITDA margins declined by 69 basis points year-on-year due to higher commodity costs linked to the ongoing geopolitical conflict.

The report said rising power demand is increasing the need for baseload generation, keeping the thermal power cycle strong.

Availability of key equipment, including transformers and gas-insulated switchgear (GIS), has also improved as original equipment manufacturers (OEMs) increased capacity to meet strong demand. Further capacity additions are expected to gradually reduce equipment lead times and ease execution bottlenecks for utilities and EPC companies.

The report said thermal power orders are likely to remain strong for several years as states continue to issue new tenders and utilities secure electricity through medium- and long-term power purchase agreements.

"1HFY27 is expected to remain softer before a recovery in 2HFY27, subject to the normalisation of geopolitical conditions," the report said.

It also highlighted that energy security remains a key policy priority, with government support for compressed biogas (CBG) and ethanol through initiatives such as GOBARdhan and consideration of higher ethanol blending targets. This is expected to support medium-term demand for bioenergy projects, particularly CBG and ethanol capacity additions.

Government capital expenditure execution also remained strong. According to 360 ONE Capital, 28 per cent of the FY27 capex target has been achieved so far, compared with 24.5 per cent during the corresponding period of FY26, with Rs 3.4 lakh crore spent.

"The stronger execution pace reinforces our confidence in continued public capex momentum and supports the achievability of the Rs 12.3 lakh crore FY27 capex target," it said.

However, the report cautioned that continued geopolitical disruptions in the Middle East could pose a near-term risk to the pace of capital expenditure deployment and project execution.