I am currently reading and analysing the capital goods, power and projects industry as a whole. The reason for studying them together is that several companies in the above sectors overlap or are suppliers to the companies in the other sector. For ex: BHEL (capital goods) is a supplier to the Power industry (ex: NTPC).

I will post a detailed analysis later. However a few points stand out

– The capital goods and projects (such as L&T, ABB etc) industry is firing on all cylinders. They are growing a high rates, have high big order books and a high return on capital.
– The market is valuing these companies at 40-50 times earnings. Somehow everyone has forgotten that the above industries are cylical (remember 1999-2002?) and the cycle can turn downwards too. In that event, the stocks can get whacked badly.
– Competition is increasing as india is becoming a major source of demand globally. Increased competition is never good for profits and valuation

2 Comments

  1. sandy says:

    wat happened in the yr 1999-2002?

  2. Rohit Chauhan says:

    the industry went through a downturn and the stocks got beaten down on price

    rohit

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