In addition to the increasing pace of vaccination, market sentiment is also buoyed by continued support by RBI and government of India.
“India’s domestic and external dynamics remain strong with both government and the RBI continuing to take appropriate policy decisions which will continue to act as tailwind to economic recovery as well as equity markets performance,” says Hemant Kanawala, Head – Equity, Kotak Mahindra Life Insurance.
Though Nifty is capable of climbing to 17,600 level,—the upper end of the rising channel, technical analysts were expecting this pause. As mentioned in previous week, Nifty may even fall to its support band of 17,000 – 17,170 before climbing back to 17,600. 17,170 is a good support now because it was a major resistance earlier. Despite Nifty going up, 17,000 continues to be the major point for Nifty put option writers. For instance, the open interest at 17,000 is placed at 84,843 contracts, compared to 23,223 contracts at 17,100, 36,725 at 17,200 and 34,263 at 17,300. Since the metal prices are still trading at higher levels (eg aluminium prices hit a 13 months high recently), the next upmove may be triggered by metal stocks.
(Narendra Nathan/ET Bureau)
Sector update: Engineering & Capital Goods
Tendering shows signs of uptick
April-August tendering grew 13% y-o-y on the back of higher tendering in the power, T&D and road segments. While tendering in the rail segment was flat, water and real estate saw a decline. The road segment accounted for the largest share of tenders, 30% of overall tenders. Water/railways/irrigation tenders accounted for 11-14%/8%/6-14% of total tenders during the April-August period. For July-Aug 2021, the pace of tendering activity exceeded the April-June 2021 level (by 15%), led by road, power equipment, railways and water supply, indicating a healthy pickup in capex activity.
Awarding activity
YTD awarding activity increased by more than 67% y-o-y on a low base. The 2-year CAGR for this period stood at 28%. road/power T&D/railways/real estate witnessed strong growth. Excluding the road segment, the 2-year CAGR for tenders stood at 14%. Apart from roads, railways/power distribution segments have also seen strong growth in recent years. Roads/railways constituted 26%/16% of the awards during April-August. On account of a large award won by BHEL (Rs 108 billion by Nuclear Power Corp of India), power equipment awards have jumped 6x in the second quarter, leading to growth of 18% in overall awards during the period, further supported by roads and water supply.
Central and state capex
For the April-July1 period, the Central government achieved 23% of its annual budget target with an outflow of Rs 1.28 trillion (up 15% y-o-y). While the overall Central government capex growth during April-July stood in mid-teens, key ministries, roads and railways, reported growth of 110% and 22%, respectively. Taking cues from such figures, developing these sectors, in addition to defence, remains the government’s top priority. Additionally, state government spending (top 15 states) at Rs 565 billion during current financial year (up more than 100% y-o-y) has been far higher than last year’s spending (12% of BE has been achieved vs. 7% y-o-y). On a combined basis (Central + States), capex growth stood at 34% y-o-y.
Credit growth to industries grew marginally by 0.1% y-o-y as of July 2021, while infrastructure credit grew 2.5%. At Rs 10.8 trillion, outstanding infrastructure credit is near the historical high, though it has been in the Rs 10-11 trillion range for the last two years. Overall industrial credit outstanding (as % of non-food credit) has gradually declined to 26% as of July 2021 and currently stands at a decadal low. Top picks from Emkay coverage Our top picks in the sector are L&T, KEC International and Kalpataru Power Transmission, considering their superior execution capabilities, existing order backlog, and relative valuations.
(Emkay)
