Capital goods stocks have steam left to power ahead

A pickup in activity across roads, railways and water sectors is expected after the elections

- Dipti Sharma

With an astounding 77% surge in the past one year, the S&P BSE Capital Goods index has ignited discussions regarding the sustainability of returns and potential corrections in the industrials sector.

What added fuel to the fire was that foreign institutional investor (FII) inflows into the sector showed moderation, declining from $1.14 billion in August 2023 to $456 million in March 2024, as per National Securities Depository Ltd (NSDL) data. Even mutual fund holdings in several capital goods stocks have moderated, showed data compiled by Abhilash Pagaria, head at Nuvama Alternative & Quantitative Research. He highlighted that the value of buying by mutual funds in industrial stocks such as Schaeffler India Ltd, Bharat Heavy Electricals Ltd, Cummins Ltd, Kalpataru Projects International Ltd, Praj Industries Ltd, Siemens Ltd, Thermax Ltd, Apar Industries Ltd, and ABB India Ltd, has come down dramatically.

Having said that, even as a multitude of stocks in the capital goods sector have experienced significant growth over the last couple of years, fund managers remain confident that there is still untapped growth potential in the space.