With the expected focus on capex/infra themes in the upcoming Budget, we continue to be positive on the capital goods sector
Indian indices began the week on a positive note and extended its gains for another trading session. The overall sentiments have turned positive on optimism ahead of Budget 2019.
We expect the FY20 budget to be expansionary, boosting both consumption and investment through tax cuts and additional expenditure.
We expect the budget to positively impact the equity market, especially FMCG, small durables, two-wheelers, real estate and infra – road and railway-related companies. The expected budget-neutral market capitalisation would be positive for PSU banks.
Also, a normal monsoon would act as a catalyst for consumption revival. That apart, an accommodative stance of the RBI and the possibility of a cut in interest rates and its transmission is the other ingredient that can spur growth over the medium-to-long term.
One should still prefer largecaps but good quality midcaps can't be ignored as the valuations look attractive. We recommend investors to continue to invest systematically into equities.
With the expected focus on capex/infra themes in the upcoming Budget, we continue to be positive on the capital goods sector. We feel that the capex cycle has broadly bottomed, and expect a gradual recovery in the same.
Here are three stocks that could give 15-24 percent return:
Larsen & Toubro: Buy | Target: Rs 1,820 | Return: 15 percent
Larsen & Toubro has reported a growth of 10.5 percent in its consolidated revenues at Rs 44,934 crore in Q4FY19 as against Rs 40,678.1 crore in Q4FY18. The growth in revenues was driven primarily by better execution in the infrastructure segment, persistent growth in hydrocarbon segment and improved performance in heavy engineering, electric and automation segments and services business.
Cummins India: Buy | Target: Rs 955 | Return: 24 percent
The company recorded improvement in EBIDTA margin in FY19 over FY18. We expect strong recovery in domestic capex over the next three years and the process would benefit the company.
We expect the demand mix for Cummins India to move in favour of higher margin products. Despite increased demand for higher margin products margin expansion likely to be modest due to strong competition.
Siemens: Buy | Target: Rs 1,644 | Return: 23 percent
Siemens registered strong sales growth on the back of a healthy order book in FY18. Order book of Rs 13,200 crore shows revenue visibility of 24 months. Order inflow for H1FY20 has grown by 13.6 percent to Rs 7,000 crore.
We expect order inflows to show strong growth due to railways, metro projects and automation orders from the steel industry. We expect sales to grow at 12 percent.
The author is Vice President - Equity Advisory at Anand Rathi Shares and Stock Brokers.Disclaimer: The views and investment tips expressed by investment expert on moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.The Great Diwali Discount!
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