Capital goods stocks gained smartly since market's turnaround after the big fall in February and March. For the three month period ending July 2, 2007 the BSE Capital Goods Index has gained 44 per cent. This is substantially more than the broad market's gain of 17.73 on the Sensex over the same period (April 2, 2007-July 2, 2007). It had substantial lead over other Indices too. The BSE Bankex was up 30 per cent and BSE Oil and Gas gained 23 per cent during the same period.
BSE Capital Goods index has 28 constituents and all gained very nicely but few just went ballistic - Punj Lloyd, the engineering and contracting firm is up 82 per cent and Bharat Bijlee, the transformers and electrical contracting firm is up 81 per cent, in three months ending July 2.
The other key gainers include L&T, BHEL, Punj Lloyd, Thermax, ABB, Lakshmi Machine Works, Praj Industries, Siemens, Gammon India and Greaves Cotton. These stocks have also been fund manager's favourite in recent months.
The reason for such a surge can be attributed to the sharp rise in sales and profits in 2006-07, strong order book position which provides clear earning visibility and insulation from the rising rupee.
Big profits of these companies is also driving their growth ambitions. The Infrastructure major L&T (up 46% in 3-months) plans to enter the defence sector. L&T was also the most bought stock in May by mutual funds. As many as 86 schemes of the equity diversified funds are invested in this stock (as on May 31, 2007).
The other fund managers' favourite was BHEL - the leading power equipment and industrial machinery company (up 36 per cent). The company is likely to face the challenge of integrating two loss making PSU's - Bharat Heavy Plate & Vessels and Bharat Pumps & Compressors. The acquisition of these complementary businesses and a likely turnaround by a proven competent management at BHEL can lead to substantial value creation.
Other notable gainers include Suzlon (up 56%), Siemens (up 33%) and Bharat Electronics (up 31%) over the past three months.