Order inflow guidance, investment pickup vital for capital goods firms

For the past several years, the capital goods sector has relied on government orders and overseas business, while the domestic private sector investment has been flat.

- DEVANGSHU DATTA

As the Budget draws near, consensus is that public sector allocations are unlikely to see substantial increases in FY27. Geopolitical tensions apart, global economic activity is muted so a big exports pickup is unlikely. However, the export outlook seems positive for L&T, and other engineering procurement & construction or EPC companies.

Private capex follows consumption with a lag. If consumption strengthens in H2 FY26, private capex will pick up by H2 FY27. The macro of low inflation, rate cuts is supportive. New technologies like electronics manufacturing, renewable energy (RE) storage, solar photovoltaic cells, electric vehicles (EVs) and green hydrogen are focus areas along with data centres.

New private investments in metals, mining, cement, and oil and gas look unlikely with these industries operating at around 70-75 per cent capacity utilisation and expansion projects already in progress. Raw material costs for copper, aluminium and zinc have risen, which will impact margins. Investors will analyse Q3FY26 results, order flow and guidance for signs of a pickup in private sector investments. Under the circumstances, selective exposure to capital goods seems the best stance.