The market is showing no signs of recovery even today (Wednesday). The global meltdown has taken all markets into its fold.
Many sectors have been hammered in the markets, and Tuesday's statistics show that capital goods index sank 4.19%, with stocks like Alstom Projects, Thermax, BEML, L&T and HEG witnessing selling pressure.
Experts feel that the fall in capital goods is purely based on profit booking since this is one space where investors are still making profits while selling.
However, none of the experts are bearish on this space, they feel that on the back of the infrastructure boom in the country, this space will definitely benefit.
Profit booking responsible for fall in capital goods
This is one of the main reasons sighted by most experts. Deven Choksey of KR Choksey Securities says,
"Most people have profitable positions in capital goods and pharma stocks, so due to this profit booking there has been a correction. This sector is providing people with profits, thus it is witnessing selling pressure."
Agrees Upendra Kulkarni of Fortress Financial Services, he says, "This beating that capital goods took is on the back of a sell-off seen in that space. It is an overall spiral in which most sectors are caught."
Fuel price hike not a trigger for capital goods sell-off
While the fuel price hike will impact most sectors marginally, experts believe there is no extra load that capital goods might have to bear. Choksey says, "Most capital goods companies have an escalation clause and such hikes are manageable. A fuel price hike impacts everyone, so I do not see any extra effect on capital goods particularly."
Kulkarni also feels that the oil price hike will not spell much of a difference for this sector.
The sector has strong fundamentals for the future
The market fall has made most sectoral indices turn negative, but experts feel that capital goods still hold a lot of promise, going forward.
Choksey says, "The valuations of stocks in this sector are rich, they are available at cheaper levels right now, so some kind of buying will come in." He says that investors must stick to known names in this sector.
Kulkarni believes that even though the sector has corrected, there is no change in its fundamentals. "The overall expansion in this space is good, there is a lot of demand, thus it holds well for the sector. India is becoming a manufacturing hub. But only the longer-term will tell how the space pans out." He however cautions investors against rushing into buying stocks in this space.
"One can bet on the capital goods space definitely. But one should not rush in to buy stocks since they haven't stabilised. One should wait and watch for now," he adds.
Picks from this space
Choksey likes BHEL, BEML and L&T from the capital goods sector and he says that one should stick to known names.
Kulkarni likes BHEL and L&T, but he says one must buy these on declines.
So, the consensus is that capital goods will benefit from the India infrastructure story, despite the market fall. And if you do get those capital goods stocks cheap, make sure you bag them, advise experts.
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