Order inflows remain robust, underpinned by continued traction in segments such as power transmission and distribution, industrial capex, and infrastructure. The ordering environment reflects a combination of public sector spending and a gradual recovery in private sector investments. While some variability in ordering may persist on a quarterly basis, the overall demand outlook remains constructive, supported by strong tendering activity and project pipeline visibility.
A key structural driver for the sector is the government’s sustained focus on infrastructure development and manufacturing-led growth. Investments in power infrastructure, including grid expansion and energy transition initiatives, are creating long-term opportunities for capital goods players. Additionally, increased emphasis on localisation, indigenisation, and import substitution is strengthening domestic manufacturing capabilities and supporting order inflows.
Another emerging growth lever is the rising investment in new-age segments such as data centres and digital infrastructure, which is driving demand for advanced electrical and engineering solutions. Alongside this, sectors such as railways, defence, and urban infrastructure continue to contribute meaningfully to the overall opportunity landscape, enhancing diversification within order books.
On the profitability front, margins are expected to remain broadly stable, with gradual improvement driven by operating leverage and better execution. While input cost dynamics and competitive intensity may pose some near-term pressures, companies are increasingly focusing on cost optimisation, project selectivity, and efficient execution to protect margins. The improving mix of orders, with a higher share of complex and value-accretive projects, also supports margin resilience over the medium term.
Structurally, the sector is witnessing a shift towards higher technological intensity and global competitiveness. Companies with diversified exposure, strong execution capabilities, and a presence in high-growth segments are well positioned to benefit from the ongoing capex cycle.
Overall, the medium-term outlook for the capital goods sector remains positive, anchored by strong order visibility, policy support, and a broad-based recovery in investment activity. As execution momentum sustains and project pipelines continue to expand, the sector is well placed to deliver consistent growth with improving operational performance.
Larsen & Tubro TP- 4400
LT’s growth outlook remains supported by a strong order book and expected earnings expansion across its core EPC businesses. The company continues to benefit from diversified project exposure across hydrocarbons, renewables, transmission and infrastructure, while emerging opportunities in defense, data centers and real estate provide additional growth levers. International operations remain a key growth driver but also a near-term risk, with overseas markets contributing nearly half of revenue and the Middle East accounting for ~39–40% of the total order book as of 9MFY26. Potential supply chain disruptions and geopolitical uncertainty could temporarily affect project execution and margins. Domestic order momentum is improving, with 29% YoY growth in 9MFY26 led by thermal power, buildings & factories and refinery projects. However, AI-driven productivity disruption is weighing on IT subsidiary valuations.
Bharat Electronics TP- 520
Supported by a robust INR730b order book and sustained inflows, Bharat Electronics remains well placed to benefit from large platform programs across the Army, Navy, and Air Force. A strong addressable market underpins expectations of sustained revenue growth exceeding 15% over coming years. • Strong execution drove revenues and margins above expectations, aided by disciplined cost control and operating leverage. Effective supply-chain management has insulated the company from semiconductor shortages and commodity volatility, while higher indigenization levels continue to support better-than-expected profitability. • Looking ahead, Bharat Electronics is positioned to capitalize on sizable orders including QRSAM, Akash-NG, next-generation corvettes, and base programs. Improved margins and healthy execution underpin management’s guidance, with revenue and PAT expected to grow at 18% and 16% CAGR over FY25–28.
(The author Siddhartha Khemka, Head of Research – Wealth Management, Motilal Oswal Financial Services)
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