Challenging year ahead
Cycle view: While our overall view on cycle recovery is negative, in terms of relative end-market positioning, we are negative on the power (boiler/turbine) cycle, while we expect T&D (transmission and distribution) to weaken in FY14 and the industrial capex (capital expenditure) revival to remain elusive. Cement, steel, and downstream oil & gas should all be weak.
We are positive on the infrastructure order pipeline but the land acquisition/ approval process is constraining ordering and there is limited progress on easing bottlenecks. We expect road/dedicated freight corridor and metro orders to be strong. Within industrials, we expect fertiliser and upstream oil & gas capex also to be strong.
Key OW/UW picks: We prefer infra asset owners over capital equipment names. Our OW ideas in the infra sector are JPA and Adani Ports. Our key UW (Underweight) is BHEL. While we prefer L&T relative to BHEL, we downgrade it to EW to reflect the weak FY14 outlook. We also downgrade Cummins to EW due to steep valuations.
How are end-markets faring in FY13? In FY13 year to date, power boiler/turbine
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