Broking firm Sharekhan is bullish on the capital goods sector stocks and has recommended buying at least 6 stocks from the space. According to Sharekhan, the capital goods sector has witnessed strong order inflow momentum in the past 12-18 months, spurred by the government as well as private investments. Hence, order backlog is at an all-time high for most of the companies and the average revenue visibility stands at three years.
Government spends and private capex push order backlog at record high
According to Sharekhan, the Order inflow of leading capital goods companies has grown at an average of 18% y-o-y in FY2022. This has led to the companies achieving the highest-ever order backlog. Growth was largely driven by various government initiatives towards infrastructure and being self-reliant through 'Make in India' initiative. "Moreover, supply chain disruptions (due to Russia-Ukraine war and Covid-led lockdowns in China) necessitated backward integration in many processes. Hence, rise in capex in sectors such as oil and gas, steel, cement, as well as emerging avenues such as green hydrogen, digitalisation, data centres, and automation have also led to growth in order inflows of capital goods companies," the brokerage has said.
Strong order pipeline
Leading companies have a strong and diversified order pipeline, which would keep the order inflow momentum intact. "For instance, L&T eyes order prospects of Rs. 6,32,000 crore. Transmission and distribution companies such as KEC International and Kalpataru Power Transmission have indicated order pipeline of Rs. 1,10,000 crore and Rs. 47,300 crore, respectively, for the coming quarters. Leading defence players such as BEL and HAL have indicated order prospects of Rs. 60,000 crore and Rs. 1,20,000 crore, respectively, for the next 6 to 12 months. Hence, we expect strong order momentum to sustain across industries," Sharekhan has said.
Capital goods sector on a strong growth trajectory
According to Sharekhan, the government's efforts and initiatives such as Atmanirbhar Bharat, Power for All, Make in India, and PLI schemes have given an impetus to investments across various sectors of the economy and new opportunities are emerging. "Further, global companies are adopting China Plus One strategy to de-risk their supply chains and are considering India as one of the alternatives. This has turned out to be a good opportunity for India as its manufacturing cost is low and the availability of skilled labour is high. Hence, we believe the capital goods sector is in a sweet spot and can witness a strong capex upcycle," the brokerage has said.
Stocks to buy from the capital goods space
Sharekhan's list of stocks to buy from the capital good space include: Larsen & Toubro (L&T), Hindustan Aeronautics Limited (HAL), Bharat Electronics Limited (BEL), VA Tech Wabag, Triveni Turbine, and Honeywell Automation.
The stock has been picked from the brokerage report of Sharekhan. Greynium Information Technologies, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.