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Capital goods in low phase after heady days

The burgeoning order books of the country’s heavy industry companies during the last four years reflect the country’s robust investment growth, writes Samiran Saha.

india Updated: Feb 16, 2009 23:01 IST
Samiran Saha

The burgeoning order books of the country’s heavy industry companies during the last four years reflect the country’s robust investment growth.

“The demand for capital goods has been very good and in case of BHEL we expect our order books to exceed by 20 per cent to about Rs 6,30,000 crore. Especially, the power sector has shown some good demand and a 35 per cent growth can be expected in power equipment,” said K Ravi Kumar, CMD, BHEL.

The country’s gross fixed capital formation stands constant (1999-2000) prices at Rs 11,70,989 crore, which is 32.1 per cent of the GDP.

This reflects the growth of the capital goods, basic and intermediate goods in the last few years, particularly between 2006 and 2008, when these sectors recorded double-digit growth.

The ripple of the global recession, however, is beginning to be felt in the sector, with a negative growth estimated for the current year.

“The key issue going forward, will be the stagnant trend in order intake in the next two years, impacting revenue and earnings of companies,” said Satyam Agarwal of Motilal Oswal Financial Services.

Two of the biggest engineering companies, Larsen and Toubro and BHEL, are both sitting on order books of over Rs 50,000 crore as the broader economy sizzled at over 9 per cent in the last three years, but analysts expect the trend to slow down in the coming year.

“The government needs to take up the supply chain management efficiently. The linkages have to be made available for the sector to flourish,” said Kumar.