The 25.5 per cent year-on-year (YoY) contraction in capital goods in October took a toll on capital goods and power companies as stocks plunged between 2-7 per cent second significant drop in three days.
BGR Energy and Punj Lloyd were two of the biggest losers,having lost 7 per cent and 5 per cent in Mondays session while Crompton Greaves and Suzlon Energy lost about 3 per cent each. For the year so far,the BSE Capital Goods (CG) and the BSE Power indices have emerged as two of the worst performing gauges,losing 40 per cent and 37 per cent,respectively while the market has lost about 22 per cent.
Investors didnt even spare heavyweights like Larsen & Toubro and BHEL which witnessed a fall of 2.62 per cent and 2.48 per cent,respectively.
In the year so far,both stocks have given up 40 per cent and 45 per cent,respectively,owing to a slow down in order inflows. Also,the cost environment remains stressful given high input costs and interest rates. In the quarter ending September 2011,order inflows for both these large caps saw decline of by 21 per cent YoY and 31 per cent YoY,respectively.
On Monday,the BSE CG index was dented by 2.4 per cent while the BSE Power index tripped by 2.6 per cent. The capital goods component of the output number showed a dramatic contraction of 25.5 per cent even as all other use based components including consumer durables witnessed a shrinkage in the month.
According to Motilal Oswal Securities,order inflow of the tracked companies declined by 11 per cent YoY in the September quarter and 16 per cent for the first half of FY12.
The brokerage house has cut down its aggregate order intake growth for the fiscal to 15 per cent from 5 per cent earlier,led by L&T and BHEL.
In the power sector,coal linkages have posed problems along with a sharp jump in the price of imported coal. The negative impact is also passed on power equipment makers where demand slow down has been accentuated by the lack of coal linkages. The higher interest rates and high leverage have put pressure on these companies abilities to fund the sustained rise in cost overruns.
The deteriorating business environment has been continuously reflected in these companies financial performance in last one year. Between April and September,most of the firms reported a flat to negative growth in their net earnings.
While net profit of companies like Crompton Greaves and Siemens dropped by more than 30 per cent,many companies including Tata Power,Suzlon Energy,Lanco Infra and GMR Infrastructure and JSW Energy reported losses.
In a report on infrastructure sector,BofAML has pointed out that high leverage of infrastructure companies increased the risk to developers capex plans.
The report points out that leveraged and asset heavy developers with negative surprises in business have emerged as the worst performers.
Leverage across the board is rising while that may not be so bad if it is regulated debt,combined with the closure of new equity window,we view it as problematic, the report said.
MMDR Bill tabled: Mining stocks plunge
Mining stocks witnessed heavy sell-off by investors as the Mines and Minerals (Development and Regulation) Bill,2011,was tabled in the Parliament that proposes profit sharing and royalty payment by the miners with the project-affected people. Shares of SAIL plummeted by 5.65 per cent to close at Rs 78.50,NMDC fell by 4.54 per cent to Rs 169.15,while another state-run firm Coal India lost 3.85 per cent to settle at Rs 304.45 on the BSE.
Among other companies,Sterlite Industries shed 3.16 per cent,Hindustan Zinc saw its shares decline by 2.18 per cent,Sesa Goa went down by 1.94 per cent. Gujarat Mineral Development Corporation plunged 3.23 per cent and Hindustan Copper lost 3.66 per cent. Tata Steel shares also declined 3.14 per cent,while JSW Steels scrip dipped 6.07 per cent.