With investors staying away due to low demand, leveraged balance sheets and policy issues in user industries such as power, the capital goods sector has been a severe underperformer. So much so that its weight in the Sensex dropped to 4.8%, the lowest in a decade. Moreover, the sector is currently trading at 2.5x (price to book value), which is a 42% discount to its 10-year average of 4.3%.
However, the pall of gloom is likely to lift, with L&T igniting hopes of a revival. During its March quarter result, L&T guided for a 15% growth in order intake this fiscal, a 50 basis points improvement in margin and 12-15% growth in revenues. Post the announcement, the BSE Capital Goods index has gained 15%, outpacing the Sensex&rs