FPIs Betting Big on Capex Cycle Upturn
Predicting the timing of a recovery in the India’s capital expenditure (capex) cycle is not easy given that such estimates by analysts in the past have been far off the mark owing to slack in industrial demand. This time, however, foreign portfolio investors (FPIs) seem to be betting big on an upturn in the capex cycle if their recent investment pattern is any indication.
Out of the total investment by the FPIs in Indian equities in the month to March, nearly one-third was deployed in industrial stocks and another 28% in finance stocks, a proxy for pickup in corporate investments, according to data compiled by ETIG from NSDL.
FPIs invested $710 million in industrial stocks in 2015. In the month to March, they have invested $431 million or nearly two-thirds of the previous year’s investment. As a result, stocks such as BHEL, ABB, L&T, Kalpataru Power Transmission have gained 10 to 30% since the end of February.
Though domestic funds invested in industrial stocks after the new government took reins in May 2014, FPIs remained underweight on the sector due to paucity of orders. The recent change in their stance can be attributed to attractive valuations after a sharp fall in February and rising power equipment bids, which reflects a reviving capex cycle after five years.
New power generation bids reached 20 gigawatts (GW) in FY16 for the first time in five years. Also, new orders for power generation equipment grew by 27% to 12GW last fiscal due to increase in orders from the state electricity boards. Among the industrial stocks, BHEL reported 42% growth in the order flow in FY16, which signals of a new power equipment capex.
ET Intelligence Group