India’s engineering and capital goods sector continues to remain at the centre of the country’s infrastructure and manufacturing growth. From power transmission projects and renewable energy expansion to data centres, semiconductors and railways, multiple industries are in the focus.
According to the latest brokerage report by Nuvama, companies linked to power transmission and distribution have continued to outperform, while several industrial engineering players are still waiting for a broader recovery in private sector capital expenditure.
The brokerage house Nuvama has identified two stocks that it currently prefers within the sector. Let’s take a look –
Stock preference: Why Nuvama likes CG Power and Thermax
Nuvama believes select names continue to offer attractive long-term opportunities.
According to the brokerage report, its preferred picks are CG Power and Thermax.
Nuvama stated that it prefers “CG Power (multiple growth levers: GIS, exports, semicon, railways) and Thermax (improving visibility, waning low-margin legacy projects, exports).”
The brokerage believes CG Power is positioned to benefit from several growth drivers at the same time. Expansion in Gas Insulated Switchgear (GIS), increasing export opportunities, semiconductor-related investments and railway projects are expected to support growth over the coming years.
For Thermax, the brokerage sees improving business visibility as older low-margin projects gradually reduce their impact on profitability. Growing export opportunities are also expected to support the company’s order pipeline.
Power transmission continues to lead the sector
Nuvama, in its report, added that power transmission and distribution remain one of the strongest themes within the engineering space.
Nuvama noted that “Power T&D remains a key structural growth driver.”
The report highlighted that India’s renewable energy ambitions continue to create significant opportunities for equipment manufacturers and engineering contractors. The Central Electricity Authority’s roadmap targets nearly 900 gigawatts of non-fossil fuel power capacity by FY36.
As per the brokerage report, this could translate into transmission capital expenditure worth nearly Rs 7.93 trillion over the coming years.
This spending is expected to create opportunities for companies involved in transformers, High Voltage Direct Current (HVDC) systems, Gas Insulated Switchgear equipment and engineering, procurement and construction activities.
Strong orders and margins
One of the standout trends in the sector has been the performance of high-voltage transmission and distribution companies.
According to Nuvama, “HV T&D players continued to outperform.”
The brokerage noted that order inflows for these companies grew by nearly 52% year-on-year, while execution increased by about 37%. Profitability also improved, with operating margins expanding to nearly 20%.
According to the report, favourable demand-supply dynamics, renewable energy-linked transmission projects and operating leverage have helped support earnings growth across the segment.
However, the brokerage also cautioned that valuations have risen sharply in some stocks.
Nuvama said, “HV T&D: Strong fundamentals, valuations cap upside.”
The report added that while business visibility remains strong, certain companies are now trading at levels where the risk-reward balance appears less attractive.
Private capex recovery still a work in progress
Nuvama noted, “Private capex – ordering healthy; execution recovery awaited.”
While order inflows remained healthy and grew by nearly 36% year-on-year, actual execution growth was much slower at around 10%.
The report noted that demand inquiries are increasing across sectors such as metals, oil and gas, data centres, semiconductors, electronics and electric vehicles.
In addition, higher freight costs, commodity inflation and currency-related pressures have affected margins for several industrial engineering companies.
Defence sector shows mixed trends
The brokerage also highlighted varying performance across defence-related companies.
According to Nuvama, “Defence: Strong visibility, execution in focus.”
Companies such as Bharat Electronics (BEL), Data Patterns (India) and Solar Industries India delivered relatively stronger execution and profitability. However, some defence companies continued to face supply-chain challenges and delivery delays.
As a result, Nuvama continues to prefer Bharat Electronics and Solar Industries India within the defence segment.
What investors need to watch
According to the Nuvama report, the engineering sector remains closely linked to India’s infrastructure expansion, renewable energy investments and the gradual recovery in private sector capital expenditure.
While transmission-related companies continue to benefit from strong order books and execution momentum, investors may need to remain selective given the sharp rise in valuations across parts of the sector.
Disclaimer: Investment in the securities market is subject to market risks; read all the related documents carefully before investing. The stock preferences and views expressed in this article are those of the cited brokerage house (Nuvama) and do not reflect the official position or recommendations of this publication. Readers are advised to consult a SEBI-registered investment advisor before making any financial decisions based on this information, as valuations and market dynamics are subject to change. This disclaimer has been generated using AI to support user well-being and responsible content consumption.
