Despite sustained demand from power, defence, and data centres, the capital goods industry faces near-term challenges from rising costs and geopolitical disruptions, with select companies showing promising order growth.
Capital goods companies are heading into the next phase of the cycle with healthy demand, but profitability is still being squeezed by cost pressure, according to Business Standard. The sector’s recent results point to solid execution and better order conversion, even as higher raw material, freight and logistics costs linked to global tensions have weighed on margins.
The strongest near-term demand is coming from power transmission and distribution, data centres and defence. Business Standard reported that private-sector capital spending has picked up across industrials, power generation, transmission and data centres, while government capital expenditure remains firm. That combination is helping to keep order inflows resilient across much of the industry.
Several companies are already seeing the benefit. Business Standard said ABB India reported a 50% year-on-year rise in order intake, while Hitachi Energy’s order inflows, excluding high-voltage direct current work, rose 26% to ₹5,100 crore in the June quarter and its order book reached ₹32,200 crore. Larsen & Toubro also posted strong order inflows, with its order book at a record level, reinforcing its position as a broad proxy for infrastructure and capital goods spending.
The sector is still carrying some near-term risks. West Asia disruptions have delayed revenue recognition on several overseas projects, particularly for engineering, procurement and construction contractors, and exports may remain under pressure while the conflict persists. Commodity prices have started to ease, though analysts quoted by Business Standard said the full benefit of lower input costs and recent price increases by companies such as ABB, Siemens and Cummins may only show up later in the year.
Investors are therefore watching a small set of trigger points closely: large transmission tenders, data-centre awards, defence orders, lower memory and commodity prices, and any further pricing action by manufacturers. Business Standard identified Cummins, GE Vernova T&D, Siemens Energy and Kalpataru Projects International as companies worth tracking, while Bharat Electronics was highlighted as a preferred defence play. The report also noted that valuation multiples have eased somewhat, but remain above long-term averages for most large names, suggesting the sector is still priced for continued growth.
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