The festival of lights will bring no joy to capital goods stocks next week as poor quarterly performances and unfavourable macroeconomic conditions are seen weighing on the investor sentiment. A grim outlook for the year ahead by sector bellwether Larsen & Toubro Ltd has further battered the already weak sentiments prevailing for the sector. Larsen & Toubro today reported a better than expected Consolidated net profit at 7.98 bln rupees for Jul-Sep, a 4% growth from the same period last year and net sales at 112.45 bln rupees, higher by 19%.
The engineering and construction major, however, shocked the Street with a sharp downward revision in its order book guidance for 2011-12 (Apr-Mar) to a 5% rise from 15% growth earlier. The revision sent the company's shares into a tizzy.
The Street will also be keenly watching the Reserve Bank of
A hike in interest rates would force capital goods companies to put expansion activities on hold, which in turn will put pressure on their order books. However, he added that in the unlikely event of the central bank taking a pause, stocks in the capital goods sector could post some recovery. At present, concerns are high regarding sticky inflation, fuel prices and retarding capital expenditure, while damage from interest rates could be felt on corporate profitability with a lag effect in the ensuing quarters, Anand Rathi Financial Services said in a note.
