March 8, 2018

Capital Goods & Engineering Industry Analysis

ALWAYS – INVEST IN WHAT YOU KNOW & WHAT YOU CAN UNDERSTAND. DEVELOP CURIOSITY AS A TRAIT

 

Must know facts:

  • Capital goods industry can be broadly classified into – engineering, construction, infrastructure, and consumer goods.
  • Engineering exports include transport equipment, capital goods, other machinery/equipment and light engineering products such as castings, forgings and fasteners.
  • According to EEPC reports – during the fiscal year 2016-17, the exports have touched US$65.23 billion, which exceeds the total shipments of US$58.8 billion in 2015-16. With the revival of demand for iron and steel in China and the US, India’s engineering exports reached US$58.8 billion in FY16.
  • Transport equipment (which includes Auto and auto component including Aircraft and ship boats) is the leading contributor to engineering exports. The segment accounted for 32.46 per cent of the total engineering exports from India in FY17.
  • Attractive markets for Indian engineering products are USA, China, Germany, U.K., Canada, France, Russia, Japan, Australia, South Korea, Saudi Arabia and Southern Africa.

Influencing factors for price change:

  1. Stocks in capital goods are best judged when its benchmarked against movement in – S&P BSE CAPITAL GOODS, S&P BSE Industrials indices.
  2. Stay updated with news changes to Tariff rates stated by government. Tariffs on capital goods and equipment have been lowered to nil or 5 per cent in general.
  3. Policy support that is extended by government time to time such as – Tax incentives that are applicable, such as 15 per cent exemption on tax to manufacturing companies that invest more than Rs 100 crore ($18.4 million) in plant and machinery.
  4. Trade agreements with foreign countries & other ‘Make in India’ initiatives is extremely important.

 

Understanding the Industry:

India’s Capital Goods manufacturing industry serves as the strong base for its engagement across sectors such as engineering, construction, infrastructure, and consumer goods. Today, the Capital Goods sector is a robust, multi-level, diversified segment of the Indian industry environment, playing a critical role in driving growth, creating jobs, and boosting exports.

The industry is dominated by the Heavy Electrical and Power Plant Equipment Segment which constitutes about 69 per cent of the aggregate production. Significant manufacturing is carried out in the sub sectors of Process Plant Equipment and Construction Equipment sectors as well.

The Indian Engineering sector has witnessed a remarkable growth over the last few years driven by increased investments in infrastructure and industrial production. The engineering sector, being closely associated with the manufacturing and infrastructure sectors, is of strategic importance to India’s economy.

India on its quest to become a global superpower has made significant strides towards the development of its engineering sector. The Government of India has appointed the Engineering Export Promotion Council (EEPC) as the apex body in charge of promotion of engineering goods, products and services from India. India exports transport equipment, capital goods, other machinery/equipment and light engineering products such as castings, forgings and fasteners to various countries of the world. The Indian semiconductor industry offers high growth potential areas as the industries which source semiconductors as inputs are themselves witnessing high demand.

 

Estimated Market Size:

The capital goods and engineering turnover in India is expected to reach US$ 125.4 billion by FY17.

India exports its engineering goods mostly to the US and Europe, which accounts for over 60 per cent of the total exports. Recently, India’s engineering exports to Japan and South Korea have also increased with shipments to these two countries rising by 16 and 60 per cent respectively. Sri Lanka, Nepal and Bangladesh have also emerged as the major destinations for India’s engineering exports.

According to the India Electronics & Semiconductor Association, the Indian Electronic System Design and Manufacturing (ESDM) market is expected to grow at a CAGR of 16-23 per cent to reach US$ 228 billion by 2020 from $100 billion in 2016-17. According to a study by The Associated Chambers of Commerce of India (ASSOCHAM) and NEC Technologies, the demand for electronic products in India is expected to grow at a Compound Annual Growth Rate (CAGR) of 41 per cent during 2017-20 to US$ 400 billion by 2020.

 

Road Ahead:

The Indian Capital Goods sector benefits from multiple engines that would propel its growth in coming years. These include rising demand for infrastructure, robust and facilitative policy support, encouragement to exports, and competitive players.

Under the ‘Make in India’ initiative, the Government aims to attract foreign capital into industrial corridors and hubs for manufacturing projects. For this, a number of policies have been taken to improve the business climate, strengthen the infrastructure for Intellectual Property Rights, and raise permissible limits for FDI. With the growth of the Indian economy expected to cross 7 per cent for the coming couple of years, as well as strong policy action, India emerges as a profitable investment destination for most foreign companies wanting to invest in India.

 

–    Article by Suman Adithya Rao (SEBI Certified Research Analyst, Management Graduate in Entrepreneurship & Small Business Management)
Looking for an investment advice – Click here!

 

Top Stocks in the industry:

ABB India Ltd, BEML Ltd, Bharat Electronics Ltd, Bharat Heavy Electricals Ltd, Graphite India Ltd., Larsen & Toubro Ltd & many more.

(Please note above stocks are not recommendations, they are purely for information purpose only)

Information Sources / References: Export Promotion Council, Ministry of Commerce,The Economic Survey 2016–17, Agricultural and Processed Food Products Export Development Authority (APEDA), Department of Commerce and Industry, Union Budget 2017–18, Press Information Bureau, Ministry of Statistics and Programme Implementation, Press Releases, Media Reports,IBEF.

 

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Knowledge Seekers Paradise: PDF DOWNLOAD’s of HANDBOOKs released by Government of India:

RBI Hand book

RBI Handbook 2018

RBI Handbook 2017-18

 

 

 

 

 

Government Schemes Announced in Budget 2018

Government Schemes Announced in Budget 2018

Government Schemes Announced – Budget 2018-19

 

 

 

 

 

 

Economic Survey 2018 – Volume 1 & 2

ECONOMIC SURVEY 2017-18 VOLUME 1 and 2

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