Bharat Heavy Electricals shares staged a sharp recovery on Friday, rising as much as 4.8% to ₹285.50 on the BSE after hitting the lower circuit with a 10% decline the previous day. The rebound came as investors reassessed reports suggesting India may ease restrictions on Chinese firms bidding for government contracts, which had initially sparked concerns about intensified competition for state-run power equipment manufacturers.

Market Performance and Recent Trends

Despite Friday's recovery, BHEL shares remain under pressure from recent volatility. The stock performance over different timeframes shows mixed signals:

Policy Background and Market Concerns

The initial selloff was triggered by media reports indicating India's plans to potentially scrap curbs on Chinese firms participating in government contract bidding. These restrictions were originally introduced in 2020 as part of the Atmanirbhar Bharat package and subsequent amendments to the General Financial Rules, implemented following India-China border tensions.

Under the existing framework, bidders from countries sharing land borders with India must obtain mandatory political and security clearances, effectively restricting imports from China across sensitive sectors including power and energy. The potential policy change raised investor concerns about increased competition and pressure on pricing and margins for domestic manufacturers.

JM Financial: Optimistic Outlook on Policy Changes

JM Financial presented a contrarian view, suggesting that removing restrictions could actually 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 provide operational advantages.

Before the 2020 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 higher costs and execution delays due to limited global supplier availability.

The brokerage noted that existing requests for proposals covering approximately 97 GW of new thermal power projects mandate domestically manufactured equipment, providing protection against potential Chinese competition.

Jefferies Expresses Caution

Jefferies adopted a more cautious stance, characterizing the possible restriction easing as a "potential negative development" for industrial players. The brokerage identified BHEL, along with L&T and Afcons, as companies likely to experience the highest impact from such policy changes.

Jefferies emphasized that transmission equipment could remain relatively protected due to national security considerations, while noting that thermal power equipment and railways were specifically mentioned in media reports about potential policy changes.

Technical Analysis Overview

BHEL's technical indicators present mixed signals reflecting the recent volatility. The stock currently trades below short-term moving averages while maintaining positions above longer-term trend indicators:

The Relative Strength Index at 41.90 indicates the stock is neither overbought nor oversold, while the MACD remains above its center line but below the signal line, suggesting mixed momentum signals.

Shares of Bharat Heavy Electricals Ltd surged 4.8% to ₹285.50 on Friday amid renewed debate over India's potential policy shift regarding Chinese firms in government procurement. The development has sparked contrasting views among analysts about the implications for the state-owned power equipment manufacturer.

Analyst Views Diverge on Policy Impact

JM Financial maintains an optimistic outlook, arguing that any rollback of restrictions, particularly at the component level, would benefit BHEL through reduced input costs and shortened project timelines. The brokerage suggests that even broader relaxation would have minimal impact on the company's business due to existing domestic sourcing rules and historical experience with Chinese suppliers.

Jefferies takes a more cautious stance, warning that BHEL could face significant competitive exposure if restrictions are lifted. The brokerage identified BHEL among industrial companies with the highest potential impact, alongside L&T and Afcons, depending on policy implementation details.

Policy Background and Current Restrictions

The renewed focus stems from media reports suggesting India plans to scrap restrictions imposed in 2020 on firms from countries sharing land borders with India. These measures, introduced under the Atmanirbhar Bharat package, significantly tightened scrutiny across sensitive sectors including power and energy.

Under Rule-144, bidders from these countries required registration with the Department for Promotion of Industry and Internal Trade and political clearances, effectively restricting imports of Chinese equipment and components for government-backed projects.

JM Financial: Component Relief Would Aid Execution

JM Financial emphasizes that current restrictions have hurt public sector units' cost competitiveness by forcing them to source critical components from Europe and other markets with limited supply chains. Before the curbs, Indian heavy electrical equipment manufacturers relied heavily on China for essential items including heavy castings, rotor forgings, and seamless pipes.

The brokerage argues that removal of restrictions at the component level, particularly for items like CRGO steel, would benefit BHEL through:

• Lower input costs
• Faster project execution
• Improved margin support
• Enhanced competitiveness

JM Financial suggests the urgency of capacity addition in thermal power and transmission could prompt the government to exempt select components and critical materials required for boilers, turbines, and generators.

Limited Chinese Equipment Appetite Expected

The brokerage downplays risks of Chinese suppliers regaining significant market share in India's thermal power sector. Current requests for proposals and power purchase agreements covering 97.00 GW of new thermal projects require equipment manufacturing in India.

JM Financial's channel checks indicate Chinese equipment manufacturers lack large spare capacities to venture into Indian markets, citing domestic demand absorption and geopolitical concerns.

Financial Outlook and Stock Performance

Despite the policy uncertainty, JM Financial maintains unchanged earnings estimates, projecting EBITDA margins to rise from 4.40% in FY25 to at least 10.70% in FY28. The brokerage forecasts EPS growth from 1.50 to 12.10 over the same period.

The brokerage continues to assume a 70-80% market share for BHEL and expects no meaningful shift by developers towards Chinese players. It reiterated a 'buy' rating with a target price of ₹363.00 based on March 2028 estimated earnings, arguing that any easing of curbs would strengthen execution and margins rather than undermine long-term prospects.