Bharat Heavy Electricals Ltd (BHEL) shares experienced significant selling pressure on Monday, declining 5.97% to ₹258.30 on the BSE. This marked the third consecutive session of losses for the PSU stock, which has now dropped 15% over the three-day period.

Trading Activity and Volume Surge

The stock witnessed unusually high trading activity, with volumes doubling compared to recent averages. Market data shows that approximately 2 crore equity shares of BHEL changed hands on stock exchanges on January 12, significantly higher than the one-month average trading volume of 1 crore shares.

Sector-Wide Impact from China Policy Concerns

The decline in BHEL shares occurred alongside a broader sell-off in capital goods stocks. This sector-wide pressure emerged following media reports suggesting the finance ministry was considering scrapping a five-year-old restriction on Chinese firms bidding for government contracts. The potential policy change has triggered concerns about increased competition for domestic capital goods companies.

Other Capital Goods Stocks Performance

Several other companies in the capital goods sector also experienced declines on Monday:

Market Position

As of 10:40 AM on Monday, BHEL shares were trading at ₹262.40, representing a 4.48% decline from the previous close. The sustained selling pressure reflects investor concerns about potential increased competition in the government contracting space, which forms a significant portion of business for many PSU and capital goods companies.

The market reaction demonstrates how policy uncertainties can significantly impact sector performance, particularly for companies heavily dependent on government contracts and infrastructure projects.

Bharat Heavy Electricals Ltd (BHEL) shares experienced significant selling pressure, declining 15% over just two trading sessions amid concerns over potential policy changes regarding Chinese firms' participation in government contracts.

Sharp Decline Continues

The stock performance deteriorated significantly as market participants reacted to policy uncertainty:

The decline resumed the stock's downward trend after a brief recovery attempt in the previous session, with investors reassessing the competitive landscape for state-run power equipment manufacturers.

Technical Analysis and Outlook

According to Anand James of Geojit Investments, the recent fall appears to be followed by an inside bar pattern formation, which could support potential upside movement. However, technical concerns remain significant:

• Stock breached its 50-day simple moving average for the first time since mid-September
• Closed below the moving average last week
• Recommendation to wait for pullback above ₹280 before turning bullish

Policy Change Concerns

The selloff stems from media reports suggesting India plans to scrap restrictions on Chinese firms bidding for government contracts. These curbs were originally implemented in 2020 under the Atmanirbhar Bharat package following India-China border tensions. The restrictions required bidders from countries sharing land borders with India to obtain mandatory political and security clearances, effectively limiting Chinese imports across sensitive sectors including power and energy.

Brokerage Views Diverge

International brokerage Jefferies expressed caution regarding the potential policy change:

Jefferies noted that thermal power equipment and railways were specifically mentioned in reports, emphasizing that implementation details would be crucial.

Conversely, JM Financial offered a contrarian perspective, suggesting the restriction removal could benefit public sector undertakings like BHEL rather than harm them. The brokerage highlighted that component-level restriction removal, particularly for items like CRGO steel, would be advantageous.

Historical Context and Future Projections

Before the restrictions, Indian heavy electrical equipment manufacturers imported substantial quantities of castings, forgings, and pipes from China. Post-curbs, companies were forced to source from Europe, resulting in increased costs and execution delays due to limited global supplier availability.

JM Financial maintains optimistic projections for BHEL:

The brokerage expects sustained thermal opportunities and improved BHEL performance in execution and margins, citing strong domestic demand and the company's positioning in the power equipment sector.