Capital Goods - Winds Of Change; Powering Up For Sustainable Growth: Motilal Oswal's Thematic View

Motilal Oswal Report

The capital goods sector has started benefitting from the government’s initiatives towards incremental capex spending, revival in select pockets of the private sector, improving growth outlook from international geographies (particularly GCC nation) and favorable raw material prices.

Government has already set the ball rolling by undertaking long-term capex across key areas such as transmission, clean energy, railways, Make in India, production linked incentive, defense indigenisation, et al. until FY30, which provides a strong addressable market for capital goods companies.

Energy transition-related investments too are driving capex across domestic as well as international markets. The combined capex of government and listed corporates increased to Rs 21.3 trillion in FY23 from Rs 14.3 trillion in FY19.

This is budgeted to grow to Rs 26 trillion in FY24 and will move up further with these initiatives. As per our analysis of BSE500 companies, private sector capex has also started growing over last two years and will get further boost from PLI led capex, expected investments in energy transition initiatives as well as growth seen in data centres, electric vehicle etc.

Thus, we believe that the entire capex is falling in place for the next decade that will augur well for the capital goods companies.

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