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Stocks of most capital goods and engineering companies are seen trading with a negative bias next week. The segment is likely to witness stock-specific action next week. Rollovers to the January contract in the capital goods segment have been lesser than average, and thus indicate a bearish view on the sector. Larsen & Toubro particularly looks weak, while Siemens and ABB are likely to see some upside. Bharat Heavy Electricals also may face downside pressure, as analysts remain cautious over the company's stock. Orders received by BHEL so far in 1H13 (Apr-Sep) form only about 30% of our annual estimate, which provides downside risk to our order inflow estimates. Orders (are) already in place for certain capacity additions at NTPC up to FY20 (2020, Apr-Mar). Sporadic orders, if any, may still not help BHEL grow its order book over the medium term.
However, in the run up to the Reserve Bank of India's third quarter review of monetary policy on Jan 29, capital goods and engineering stocks may see some upside on hopes of a rate cut. The capital-intensive sector has been reeling under high finance cost that has made most projects unviable. Stocks of Suzlon Energy will remain in focus next week, as it has been reported that the company will meet its lenders later yesterday to discuss its debt restructuring plan. Companies manufacturing equipment in the transmission and distribution space look positive. Power Grid Corp of India is likely to award nearly 40% of its annual order target for investments in Jan-Mar. KEC International and Kalpataru Power Transmission stand to gain from such orders.
