Capital Goods Stocks Tumble 5% as China Competition Fears Mount
Overview
Indian capital goods stocks plunged 5% this week amid fears that the government may ease restrictions on Chinese firms bidding for tenders. Major companies like BHEL and Hitachi Energy India saw significant drops as investors priced in renewed competition and potential margin pressure. The sector faces headwinds despite ongoing infrastructure development plans.
Capital Goods Index Plunges Amid Competition Fears
The BSE Capital Goods index plummeted 2% in Monday's intraday trading, capping a brutal week that saw the index shed 5%. This decline significantly outpaces the 3% dip in the broader BSE Sensex over the same period, signaling specific distress within the sector.
Shares of key players were hit hard. Hitachi Energy India and Bharat Heavy Electricals Limited (BHEL) both dropped 5% intraday. Other major companies like Kirloskar Oil Engines, Apar Industries, Thermax, Cummins India, Siemens, Siemens Energy India, and ABB India saw declines ranging from 2% to 4% on Monday. In the past week, BHEL, Hitachi Energy India, Siemens Energy India, and Cummins India experienced even steeper falls, losing between 7% and 12% of their market value.
Investor Jitters Over Chinese Bids
The sharp sell-off, particularly noticeable since Thursday, appears linked to reports suggesting the Indian government is considering easing restrictions on Chinese firms bidding for government contracts. These restrictions, imposed in 2020, required Chinese bidders to obtain security clearance, effectively barring them from an estimated $700 billion to $750 billion worth of government tenders. The potential policy shift aims to address persistent project delays and supply chain constraints plaguing the power, railways, and infrastructure sectors.
However, the market's reaction highlights deep-seated concerns over renewed competition from Chinese Original Equipment Manufacturers (OEMs). Investors fear this could lead to significant pricing pressure and a compression of profit margins for domestic companies heavily dependent on these large public sector tenders.
Brokerages Weigh In
Brokerage firms have flagged the near-term negative sentiment. ICICI Securities noted that companies with a high dependence on government orders are particularly sensitive to potential margin erosion. This concern is especially pronounced in power equipment, transmission, and railway projects.
Despite these headwinds, India's robust infrastructure development pipeline, including ambitious targets for power generation capacity and transmission infrastructure, continues. BHEL, in particular, highlighted its strong position in the transmission landscape in its FY25 annual report. Elara Capital, meanwhile, forecasts a 10% year-on-year revenue growth for the capital goods sector in the December 2025 quarter (Q3FY26E), citing healthy industrial demand and strong execution. However, order announcements for Q3FY26 (excluding L&T) showed a 20% year-on-year decline, totaling ₹32,400 crore, indicating a challenging environment for new business.
Sector Outlook Amidst Competition
The potential return of Chinese competitors looms large over the sector's outlook. While the government's move might be intended to accelerate project completion, it introduces a significant competitive threat that investors are now aggressively pricing in. The balance between expediting development and protecting domestic industry margins will be critical for the capital goods sector's future performance.
