Capital Goods – Good for long-term capital creation

After being the darling of stock markets for several years (during the boom time of 2003-2007), the fortunes of the Capital Goods sector took a complete U-turn post the Lehman fiasco which engulfed the entire world into a deep financial crisis. However, after reeling under pressure for couple of years, the sector is once again on a march upwards. The scenario for the Indian economy in general and that for the Capital Goods industry in particular has undoubtedly improved to an extent, after the political stability in the country along with the easing liquidity situation and the offshoots of recovery in the global economy. The visibility also seems to be gradually improving, with foreign investments in India continuing their momentum, with financial closure now happening of projects stalled for several quarters, and with quite a few companies across sectors having successfully tapped the domestic and global financial markets. Nonetheless, we believe that several Capital Goods stocks are already trading at premium valuations, leaving little scope for outperformance. Thus one needs to be selective in stock picks keeping in mind valuation comfort coupled with sustainable competitive advantage for the businesses.

By Mr. Puneet Bambha,Research Analyst,Capital Goods & Engineering, Angel Broking