Sector update: Capital Goods - Capex data reflects delays in investment cycle recovery
Our analysis of CMIE data shows 55% yoy fall in new project announcements in Q3FY19 at Rs1trn. The fall in new announcements was across sectors, except real estate, which saw an increase due to affordable housing projects in Maharashtra. The drop was across private (-64% yoy) and government (-41% yoy) sectors. However, the share of private sector fell sharply to 50% from 62% a year ago. Project completions too fell 30% yoy to Rs829bn. The silver lining was 6% yoy decline in projects stalled, though it remained elevated at 10.8% of projects under implementation. Similarly, projects under implementation rose 4% yoy, led by transport, irrigation, cement, autos, etc.
Most lead indicators reported a slowdown, particularly in Dec 2018, which trickled into end product prices as well. We see delays in investment cycle recovery, given the forthcoming national elections and liquidity crunch, apart from uncertainty in global trade. We prefer Voltas (structural AC industry growth), Engineers India (play on hydrocarbon capex revival) and KEC Intl (power T&D and railway capex beneficiary).
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