Devika Ghoshmoneycontrol.com
A capex recovery appears to be some way off, but brokerages have been sounding bullish on capital goods companies of late, betting on stronger order flows and economic revival.
The BSE Capital Goods Index has risen 18.10 percent in the past six months, compared to a 0.4 percent increase in the Sensex during this period.
"The commentary of many capital goods and infrastructure companies has turned positive; the fourth quarter management guidance also suggests that these companies are now talking about increased order inflows and a pick up in order execution," Prabodh Agrawal, President and Head of Research at IIFL Institutional Equities told CNBC-TV18 earlier today.
He expects these companies to post stronger revenue growth, though margin expansion may be slower.
“Margins maybe a FY17 story, but the stronger revenue growth itself implies stronger bottomlines,” Agrawal said.
Last month, the Centre for Monitoring of Indian Economy had said that some of the stalled infrastructure projects were moving, even if fresh capex announcements were not too many.
Earlier today, CLSA upgraded its rating on BHEL to 'buy' from 'sell', saying it would be the biggest beneficiary of potential doubling of Indian power equipment market to 20GW in FY16CL and falling material prices (steel).
The brokerage has also raised the stock's target price to Rs 320 from Rs 250 earlier.
On Thursday, broking firm brokerage Credit Suisse raised L&T's price target to Rs 2,175 from Rs 1,900, while maintaining its outperform rating.
Credit Suisse said the higher target price was supported by stronger order inflow/backlog visibility, stable working capital, margins (positive tailwind from commodities/operating leverage) and better execution.
But there are skeptics as well, who feel the market is getting over excited about a capex recovery.
"As a driver of either economic growth or earnings growth in the current fiscal, the pick-up in infra orders is helpful but not really a big driver of earnings growth or economic growth in the current fiscal. It is more a FY17 event," Saurabh Mukherjea of Ambit Capital told CNBC-TV18 in a recent interview.
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