The capital goods sector put up an impressive show in the March quarter (Q4FY25). Order inflows for key companies such as Larsen & Toubro, Hitachi Energy, ABB India Ltd, and Siemens India Ltd were strong in the quarter. The improvement was aided either by international orders in the renewables segment or by domestic transmission and distribution (T&D) segments.
On an aggregate basis, capital goods companies under the coverage of Nuvama Research saw order inflows rise 21.2% year-on-year to ₹1.64 trillion and revenue expand 10.4% on-year to ₹1.35 trillion, fuelled by strong execution, mainly by power electrical equipment companies.
The management commentaries indicate that order inflows are likely to remain robust going ahead, thus aiding the sector’s revenue visibility. The prospect pipeline also remains strong for companies in these segments.
For instance, Larsen & Toubro’s prospect pipeline is up 57% on-year, particularly from international, while Hitachi Energy’s prospect pipeline is still strong from upcoming HVDC projects and export orders.
Other companies such as KEC International Ltd and Kalpataru Projects International Ltd are seen benefiting from a strong T&D pipeline.
No wonder the weight of capital goods stocks in the benchmark index Nifty 50 increased to 5.1% in May from 4.6% in April, according to an analysis by Motilal Oswal Financial Services Ltd.
Green shoots
Ordering activity in various segments such as T&D, renewable energy and defence is expected to remain strong. Plus, the momentum in government capital expenditure is likely to pick up. According to ICICI Securities Ltd’s 2 June report, over the six months ending April 2025, government capex of ₹ ₹7.5 trillion is the highest ever. This bodes well for capex-oriented stocks, including capital goods and power, it said.
However, on the flip side, private sector capex continued to remain weak, with companies stating that enquiries have further shifted by a quarter. Plus, valuations of key capital goods stocks are expensive.
According to Motilal Oswal, there are four key factors to watch out for: finalization of an emergency procurement pipeline for the defense sector as well as contracts for large projects; growth in segments other than electrification/energy for companies like ABB and Siemens; the conversion of inquiries to orders for private sector companies such as Thermax and Triveni Turbine; and stability in the powergen market for companies such as Cummins India and Kirloskar Oil Engines Ltd, which had seen the impact of a high base of last year.
