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Stocks of most capital goods and engineering companies are expected to gain further next week as the industrial production data for October may show a rebound, lifting the overall market sentiment. India's industrial production had unexpectedly contracted 0.4% in September led by the beleaguered capital goods sector. In August, the industrial output had grown 2.3%. Index of Industrial Production for October will be released on Wednesday, we expect to show a strong improvement over the year-ago period due to the statistical impact of a low base.
Fundamentally, the capital goods sector still remains subdued, but is expected to pick up going ahead. we believe that a cut in lending rates is imminent, as is finalisation of capacity addition by central and state utilities. We also expect clarity to emerge gradually on contentious issues like re-financing of SEB (state-electricity board) debt, coal allocation as well as re-negotiation of unviable IPP PPAs (independent power producers' power purchase agreements).
