The capital goods sector is back in the spotlight, and brokerage house Motilal Oswal is betting big on five standout names. The firm has reaffirmed its positive stance on Larsen & Toubro (LT), Bharat Electronics (BEL) in the large-cap space, and Kirloskar Oil Engines and Kalpataru Projects International in the mid- and small-cap segment.
But what is supporting this bullish view? According to the brokerage firm, a mix of order books, policy tailwinds, export opportunities, and margin stability make these companies .
Motilal Oswal on capital goods: Order books and visibility
One of the biggest positives for capital goods companies right now is visibility on future revenues. As per the brokerage firm, the sector is “comfortably positioned,” supported by four key factors, “1) Strong order book providing healthy revenue visibility, 2) favorable commodity prices offering comfort to margins, 3) strong balance sheet that provides leeway for capex, and 4) favorable government policies.”
In the first quarter of FY26, companies under Motilal’s coverage are expected to report 14% YoY growth in revenues, backed by strong execution and healthy order momentum across sectors like defense, power transmission, renewables, and infrastructure.
Motilal Oswal on capital goods: Defence orders lead the way
India’s defence push is another major growth trigger. Emergency procurement programs and Make in India initiatives have unlocked substantial opportunities for players like Bharat Electronics.
“The DAC has approved emergency procurement worth Rs 400 billion for the Indian Defence Forces,” the report noted, adding that this includes high-tech weapon systems like surveillance drones, loitering munitions, and anti-drone missiles.
The brokerage house report noted, “In 1QFY26, BHE won approx. Rs 73.5 billion worth of orders, KECI secured approx. Rs 68.5 billion, and KPIL acquired approx. Rs 71.5 billion. Backed by a strong order book and the anticipated finalization of pending pipeline orders, we expect execution for our coverage universe to grow 14% YoY in 1QFY26.”
Motilal Oswal on capital goods: Margins holding steady
While revenues are growing, margins are also expected to remain steady, supported by easing commodity prices. According to the brokerage firm, “We expect ~10bp of YoY margin expansion in 1QFY26 for our coverage universe.”
Although there might be sequential contraction due to a high margin base in defence last quarter, companies are managing to protect profitability through better pricing, cost control, and movement toward high margin products.
Domestic demand aside, capital goods exporters are also seeing growing traction in international markets. Companies are actively pursuing projects in the US, Europe, and the Middle East, particularly in areas like renewable energy, transmission, and defense systems.
“Defence companies are targeting larger opportunities through the export of major platforms such as Akash missile, MRSAM, and defence control systems,” Motilal Oswal noted.
Motilal Oswal on capital goods: Valuations
While the capital goods sector has already seen a fair bit of rerating, sustained earnings and order visibility will be key to holding valuations, especially with private capex still showing uneven recovery.
According to the brokerage, “Valuations for transmission sector plays would continue to remain high on continuously improving market opportunities on T&D and renewable.”