The Secret Behind Capital Goods Soars 6%!
Shares of capital goods companies are soaring. The S&P BSE Capital Goods index rose by 6.4% to 74,550 on the BSE during Monday's intra-day trade. Notably, this index saw its highest intra-day rise in over four years. Previously, on March 26, 2020, the BSE Capital Goods index had surged 7.6% in intra-day trading. Companies like Bharat Electronics Limited (BEL), Larsen and Toubro (L&T), Hindustan Aeronautics Limited (HAL), CG Power and Industrial Solutions, Bharat Heavy Electricals Limited (BHEL), and Schaeffler India rallied between 7% and 9% in intra-day trade today.
Additionally, strong momentum in equity markets followed exit polls for the 2024 Lok Sabha elections. These polls suggest a comfortable majority for the BJP-led NDA, with gains in East and South India and continued dominance in its traditional strongholds. Kotak Institutional Equities expects the new government to continue its agenda of development, growth, and reform, focusing on investment-led growth. The recent large transfer of the Reserve Bank of India (RBI) surplus enables it to increase capital expenditure versus the interim budget.
The firm believes the government will continue to focus on key areas like affordable healthcare and housing, energy transition, and infrastructure development (defense, railways, and roads). Meanwhile, the IMF expects the Indian economy to grow by 6.5% in FY25, driven by resilient domestic demand. S&P Global Ratings expects India to remain the fastest-growing major economy for the next three years, putting it on track to become the world's third-largest economy by 2030, overtaking Japan and Germany.
The country's focus on energy transition, energy efficiency, and electrification of industries is likely to create more job opportunities. The infrastructure push to build roads, ports, expand the railway network, and tunnels, with increased capital expenditure, will continue to drive capacity expansion and maintain a strong demand for safe and sustainable electrification solutions. Government policies, the push for Digital India, data localization, and classification of data centers as infrastructure assets in a young industry adaptable to greener standards will all drive this segment.
