L&T To BEL: Multi-Year Capex Upcycle Keeps Macquarie Bullish On Industrial Stocks

Macquarie Equity Research remains bullish on domestic industrial companies with Cummins India Ltd. and Bharat Electronics Ltd. as its top picks as India is set for a multi-year capex upcycle with multiple themes at play. Infrastructure capex in India has increased significantly over the past few years, on an increased government push, the brokerage said.

Projects such as high-speed rail have seen significant progress, while industrial capex, though much smaller in comparison, has also seen a selective uptick, the brokerage said in an April 11 note.

The ongoing capex upcycle will be a multi-year trend, aided with government infrastructure and policy thrust across multiple sectors and an increasing private sector capex appetite, Macquarie said. Among the multiple themes, defence indigenisation stands out, it said. "We project over $300-billion opportunity over the next decade."

Weaker-than-expected order inflow and prolonged raw material price volatility are key risks to the brokerage's call.

Macquarie resumed coverage of Indian industrial stocks with Cummins India and BEL as its top picks.

The brokerage also rated Larsen & Toubro Ltd. and Carborundum Universal Ltd. as 'outperform'. It has given a 'neutral' rating to ABB India and Siemens Ltd. and an 'underperform' rating to Bharat Heavy Electricals Ltd. and Thermax Ltd.

Listed companies in the space have benefited from a sharp pickup in order wins, according to the brokerage. "Orders from base businesses have been supplemented by orders from 'sunrise' sectors."

Although near-term volatility on profit taking cannot be ruled out, we have a constructive 12-18-month sector view, the note said.

Cummins, ABB, BEL, and Siemens are relatively more exposed to short-cycle execution, while BHEL, Thermax, and L&T are more exposed to long-cycle projects, the brokerage said. "We see the fewest execution risks in product-focused companies, with Cummins, ABB, BEL, and Siemens standing out."