capital goods stocks: MNC capital goods stocks gain traction on govt’s planned infra and capex push

Mumbai: Multinational capital goods stocks, which have been relatively inactive in recent months, are now garnering interest from investors. Analysts foresee a potential uptick in the performance of these stocks in the coming weeks, citing a positive outlook for the sector.

This optimism is driven by government initiatives that support incremental capital expenditure, a revival in specific segments of the private sector, and a more favourable growth outlook in international markets.

The Siemens stock, which saw a modest 5.5% increase over the last six months, surged 10% in December. Similarly, ABB, with a 12% gain in the previous six months, has experienced a notable uptick of more than 9% in December. Additionally, Hitachi Energy and Ingersoll-Rand have both recorded gains of over 8% since the beginning of the month.

Analysts see positive traction in the capital goods segment as the government endeavours to push capex activity that’s expected to drive the next leg of growth in an economy where capacities are beginning to be stretched.

Global companies having strong cash flows and high levels of capacity utilization would take advantage of the Centre’s initiatives as well as incentives, said analysts.”Most MNCs catering to infrastructure, whether they are in power transmission, distribution, green energy or railways sector, can leverage their strong parentage, technical know-how and global presence,” said Kaushik Dani, fund manager – PMS, Abans Investment Managers. “Investments in these sectors along with areas like defense, shipping and engineering are creating demand for capital goods companies as earnings visibility is enhanced for investors.”

The government has already initiated action in crucial sectors such as transmission, clean energy, railways, Make in India, Production Linked Incentives (PLI), defence indigenization, and more. Investments related to energy transition are also influencing capital expenditures. Private sector capex have begun to climb selectively over the past two years and are expected to receive additional momentum from PLI-driven capital expenditures, said analysts.According to Vaibhav Shah, Fund Manager, Torus ORO PMS, capital goods companies having a global presence generally will benefit on account of better technical know-how, global supply chains, strong parentage, better corporate governance, strong growth profile and better operational performance amid FPI flows coming back.

The government’s concerted focus on augmenting spending in infrastructure and capital-intensive projects forecasts a substantial uptick in demand for machinery, equipment, and associated services offered by multinational entities. This could lead to higher order volumes, revenue growth, and potentially, stock price appreciation, said analysts.

“The link between amplified government spending and potential resurgence in private sector activities, coupled with multinational corporations’ strategic positioning, casts a promising light on the trajectory of capital goods stocks,” said Amit Goel, chief global strategist, Pace360. “This alignment of factors sets the stage for heightened demand, potential revenue amplification, and the possibility of robust stock performance within the multinational capital goods sector in the foreseeable future.”