Capital goods are falling knives; sell BHEL, BGR: Espirito

Moneycontrol Bureau

Brokerage house Espirito Santo feels buying capital goods at these prices is like catching a ‘falling knife’, as there is no visible sign of improvement in order flows. Also read: Nifty may see new highs in January, says Ambareesh Baliga The brokerage has recommended a sell on Bharat Heavy Electricals, BGR Energy and Thermax, saying shrinking order flows will worsen working capital and squeeze margins and return ratios. Espirito analysts Krishnakant Thakur and Pawan Parakh have assigned fair values of Rs 190, Rs 2023 and Rs 432 for BHEL, BGR and Thermax respectively. "Fresh orders continue to witness a sharp contraction, with orders in H1FY13 contracting 57 percent year-on-year. New orders of Rs 7900 crore for the quarter have also touched their lowest levels since 2005 and contracted 91 percent year-on-year. Issues surrounding improving domestic fuel supply, price pooling for imported coal and signing of FSAs remain a big overhang with no immediate resolution likely, hence we don’t see the bottom," says the Espirito note.