CNBC-TV18’s Executive Editor, Udayan Mukherjee – Capital Goods have corrected quite a bit, so stocks don’t fall in a straight line and particularly stronger sectors like capital goods. It’s entirely possible that you get a bounce because stocks got crunched down quite a bit on Friday, specifically most largecap capital goods stocks were down between 5-8%. If the markets rebounce a little bit you could see some movements where people buy on dip in capital goods. But my sense is, this is one sector for which earnings too, can be quiet key. BHEL was a disappointment, the other couple like BEML etc were not exactly spectacular.
 
So people are quite apprehensive and are waiting for those earnings with a great degree of anticipation. If any chink or any crack is visible in earnings of ABB, Siemens, Larsen and Toubro (L&T) those kinds of stocks I think the chances of the sector getting further getting derated are very high.

We all know how strong these stocks have been over the last two-three years, they have been poster boys of this bull-run. But if things start souring then these stocks, these sectors tend to get derated very fast. So I don’t know a hand on heart, one can’t call a bottom for capital goods sector just yet. They have corrected. Can they bounce technically? Sure they could. But unless earnings are very robust this current quarter I think the chances of further derating of the sector cannot be ruled out.
 
The interesting observation on Friday was also that it’s not just BHEL and L&T, which fell, it trickled down to the midrung. Crompton Greaves, Voltas fell off quite a bit, Praj Industries corrected. So people are getting a little nervous about the midrung capital goods, infrastructure plays as well. If we look at valuations, even in the midrung you will find more stocks - I mean Voltas for example is still at 20-times FY09 earnings after the correction which has happened.
 
So if some cracks appear in the earnings all these stocks could settle in a broad 14-17, 14-16 kind of PE band in which case they would lose a lot of their current marketcap. So apprehensive about the sector, a little bit of technical bounce not withstanding.