Motilal Oswal's Top Picks: Bharat Electronics, L&T, and Cummins India Lead the Way in Capital Goods Sector

Motilal Oswal has identified Bharat Electronics as its top sector pick in the capital goods space, followed by Larsen & Toubro, Cummins India, and Siemens Energy. The brokerage believes that despite stretched valuations, selective bets in the sector can still deliver. Strong earnings momentum and order inflows driven by defence, renewables, and T&D are key drivers for the sector.

Motilal Oswal Financial Services has identified Bharat Electronics as its top sector pick in the capital goods space, followed by Larsen & Toubro, Cummins India, and Siemens Energy. The brokerage believes that despite stretched valuations, selective bets in the sector can still deliver. Strong earnings momentum and order inflows driven by defense, renewables, and transmission and distribution (T&D) are key drivers for the sector.

According to the latest report, Bharat Electronics is also the top defense pick. The sector has reported a strong profitability in the June quarter, with aggregate revenue growth of 15% year-over-year (YoY) and broadly stable margin performance. Big names like Larsen & Toubro, Cummins India, and Kalpataru Projects International reported strong execution, while defense players such as Bharat Electronics and Hindustan Aeronautics also delivered. However, margin pressures were visible in Siemens Energy and ABB.

One of the biggest drivers for the sector has been the healthy order pipeline across power transmission, defense, and renewables. The sector's aggregate order inflows jumped 28% YoY, mainly driven by Larsen & Toubro and Kalpataru Projects International. Export performance has also improved for companies across the product and EPC segments, with Larsen & Toubro generating over half its revenue from international markets.

Motilal Oswal believes that the Indian defense ordering pipeline will remain strong in the near term on account of emergency procurement, as well as for the medium-to-long term, led by both base and large-sized orders. The brokerage also highlighted that private sector capex remains sluggish, but government-led demand is keeping the sector active.

References:
[1] https://www.business-standard.com/markets/news/godrej-consumer-ultratech-motilal-oswal-financial-services-suggests-these-6-stocks-to-buy-125082800081_1.html
[2] https://www.financialexpress.com/market/motilal-oswals-top-sector-picks-why-bharat-electronics-and-lampt-stand-out-3964465/