GOLDEN RULES FOR TRADING

Capital Goods Stocks Outlook for the Week – 22 to 26.09.2014

Capital Goods Stocks Outlook for the Week – 22 to 26.09.2014

Stocks of most capital goods companies are seen trading in a range on lack of sectorspecific
triggers.

However, investors are seen favoring stock of capital goods companies operating in
short-business-cycle businesses such as Cummins India, Voltas and Crompton Greaves
over peers such as those catering to the boiler, turbine and generator demands of the
power industry.

Based on projects sanctions by financial institutions and money raised by External
commercial borrowings/initial public offers, RBI estimates corporate capex dipped by
18% in FY14 to Rs 2,514bn (2.51 trln rupees), report by the Reserve Bank of India.
According to the report, based on projects sanctioned till 2013-14 (Apr-Mar), the
corporate capex is likely to see another dip in 2014-15 (Apr-Mar).

With a major corporate capital expenditure revival still a long way away, long-businesscycle
companies like Thermax, Siemens and Bharat Heavy Electricals are not
recommended with a short-term view.

Stocks of sector bellwether Larsen & Toubro, which fell 4.4% this week, may see further
buying pressure if the stock of the company fall below the 1,500-rupee level.

Among the short-business-cycle, or product, companies, we are bullish on Cummins
India. We see a potential upside of 15-20% to the stock price in the next four to six
months. Given the improved guidance, increasing visibility of the domestic environment
and significant ramp-up in the export business, we believe the company is poised to
deliver a healthy earnings growth in the coming years.