Bharat Heavy Electricals witnessed significant selling pressure beginning January 8, when shares tumbled 14% intraday following media reports suggesting a government committee had recommended allowing Chinese power equipment manufacturers to participate in government contract bidding. The market's primary concern revolves around potential renewed competition that could impact BHEL's dominant position in the boiler-turbine-generator segment.

Market Reaction Analysis

Several analysts believe the sharp market reaction may be overdone, considering multiple factors that could limit the actual impact of such policy changes. Brokerages suggest the recommendation faces low probability of implementation given the current volatile geopolitical environment between India and China.

Even if restrictions were lifted, industry experts indicate that demand for Chinese equipment has declined due to persistent quality issues, high downtime, and elevated maintenance costs. Systematix Shares and Stocks noted in their January 12 report that any potential relaxation would likely aim at easing supply-chain constraints and improving project execution rather than increasing original equipment manufacturer competition.

Strong Order Book Foundation

Despite market concerns, BHEL's fundamentals remain robust with significant contract wins and a substantial order pipeline. The company's recent achievements include:

The order inflow trajectory demonstrates remarkable improvement, with FY25 witnessing ₹92,000 crore compared to ₹78,000 crore in FY24. This represents a substantial increase from the ₹20,000 crore annual average during FY21-23. ICICI Securities projects FY26 order inflows to maintain levels close to FY25 performance.

Financial Performance Recovery

The company has emerged as a key beneficiary of the government's renewed focus on thermal power capacity addition, following power shortages attributed to excessive reliance on solar energy. This policy shift has directly contributed to BHEL's swelling order book and improved financial outlook.

Execution and Margin Outlook

BHEL's historical financial performance faced challenges due to high operational costs, resulting in an average EBITDA margin of merely 3.40% during FY23-25. However, the September quarter (Q2FY26) showed significant improvement with margins reaching 7.70%.

ICICI Securities expects execution ramp-up acceleration in FY27, noting that previous delays stemmed from teething issues in new build-ups, which are now being resolved. The brokerage anticipates sharp execution improvement as these operational challenges are addressed.

Valuation and Market Expectations

Bloomberg consensus estimates project BHEL's earnings per share to surge to ₹9.30 in FY27, representing a six-fold increase from ₹1.50 in FY25. The stock currently trades at approximately 28x FY27 price-to-earnings ratio based on Bloomberg data.

Analysts emphasize that such elevated valuation multiples and earnings expectations will require consistent execution and margin delivery to justify investor confidence. The company's ability to capitalize on its substantial order book while maintaining operational efficiency will be crucial for sustaining market performance going forward.

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.