Capital goods stocks, touted as among the top picks for 2025 by several analysts, tumbled on Friday after Siemens highlighted a lack of meaningful private capex traction in India during its analyst call. The company, a benchmark of sorts for heavy engineering, also noted slower investments in traditional technologies and revealed it is not participating in line-commutated converters (LCC) in India or globally. LCCs, used to convert alternating current (AC) into direct current (DC) and vice versa, are integral to high-voltage DC systems.Shares of Siemens plunged 10% to close at ₹6,869, its second-biggest single-day fall in the last one year. Earlier on the election results day on June 4, the stock fell 12%. ABB India shares fell 6% to close at ₹6,921 while Walchandnagar Industries shares declined 6% to close at ₹262. 116524183However, analysts believe that the Indian capex cycle is robust and sustainable, and private-sector capex will intensify it further."The capital goods sector is expected to be a key focus in 2025, with earnings likely to improve starting Q4 FY25 with the outlook remaining positive," said Pankaj Pandey, head of research, ICICI Direct. "Government capex is projected to gain momentum in 2025, but market sentiment took a hit after Siemens stated that private capex growth is not yet broad-based."BSE Capital Goods index fell 3% on Friday. Several other stocks in the sector like BEML, Engineers India, CG Power, and Ingersoll Rand among others declined between 3% and 5%. The BSE Capital Goods index outperformed the Sensex with 25% returns in the past one year compared to a 9% gain in Sensex.Siemens noted private capex activity in sectors such as semiconductors, batteries, solar PVs, and electric vehicles.However, it highlighted that while the overall investment trajectory across most sectors is improving, capex in automotive and metals remains stagnant."While public capex is focused on infrastructure spending, the private-capex cycle is focused on decarbonisation, energy transition, and incentives such as production linked incentive scheme," Vinod Chari, analyst, Phillip Capital, said in a note to clients. "In a strong capex environment, all stock valuations rerate as they enter a virtuous cash flow cycle. However, each company has its drivers and variables and is uniquely leveraged to the cycle; to extract maximum value, it is best to pick out a basket of stocks."According to Vinod Chari of Phillip Capital, diversified players offer lower risk, making L&T our top pick with ABB, Cummins India and BHEL in their respective sub-spaces.
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