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.

The Indian government is reportedly exploring the possibility of lifting a comprehensive ban on Chinese companies that has prevented them from participating in government contract bidding processes since 2020. This potential policy reversal indicates a significant shift in India's approach to commercial relations with China, coinciding with apparent improvements in diplomatic ties and border tensions between the two nations.

Policy Background and Current Status

The original ban was implemented in 2020 amid escalating border tensions and security concerns, effectively barring Chinese firms from competing for lucrative government contracts across various sectors. This restriction has been in place for five years, creating opportunities for domestic companies and other international players to fill the gap left by Chinese competitors.

The reported consideration to roll back this ban suggests that policymakers are evaluating the balance between national security concerns and commercial interests as bilateral relations show signs of stabilization.

Potential Market Implications

The possible policy change could have varying impacts across different sectors of the Indian economy. Defence public sector undertakings and other government-linked companies have operated in an environment with reduced Chinese competition during the ban period.

The development reflects broader geopolitical considerations as India navigates its relationship with China while balancing economic opportunities with security concerns.

Diplomatic Context

The timing of this reported consideration aligns with recent diplomatic efforts to ease tensions between India and China. Border disputes and diplomatic friction that intensified around 2020 appear to be showing signs of gradual improvement, creating space for potential commercial policy adjustments.

This potential policy shift represents a significant development in India-China commercial relations, though the actual implementation and scope of any changes remain to be determined by government decision-makers.