Capital goods rally may pause now

Capital goods stocks have significantly benefited from the optimism surrounding the 2024 general elections. The S&P BSE Capital Goods Index has rallied a whopping 66% so far in 2023, reflecting the enthusiasm around the government's increased focus on infrastructure and allied projects. But is there more steam left in this rally? Depends on the earnings performance and continuity of order inflows momentum

- Dipti Sharma

In HIFY24, the sector saw a robust 52% increase in aggregate order inflow year-on-year, largely driven by industry leader Larsen & Toubro (L&T), which logged a 65% growth, according to Incred Research Services Pvt. Ltd. So far so good, but with the upcoming general elections, some caution might prevail, possibly hampering order inflows until elections are out of the way.

Amit Anwani, an analysts at Prabhudas Lilladher anticipate frontloading of orders before the Union Budget. So, there could be some caution in awarding orders between the Budget and the general elections. "Since the companies are sitting on a robust order backlog, strong execution of these orders will contribute to healthy revenue growth for companies in the capital goods and engineering and infrastructure sector. However, order book might see some moderation, given the absence of new orders because of caution during February-May," he said.