Capital goods stocks faced significant selling pressure on Monday, January 12, with major companies including BHEL, ABB India, CG Power, and others declining between 1% to 6%. The weakness extended losses from the previous week as concerns mounted over reports suggesting Chinese companies may be allowed to bid for government contracts in the transmission sector.

Market Performance and Stock Movements

The capital goods sector witnessed broad-based selling across key players. The following table shows the performance of major stocks:

Within the high voltage and extra high voltage space, stocks like Hitachi Energy, GE Vernova T&D, CG Power, and Transformers and Rectifiers emerged as some of the most active names during the trading session.

Industry Expert Analysis

According to Renu Baid Pugalia of IIFL, industry interactions indicate that within the transmission space, power transmission, and high voltage reactor category, Chinese manufacturer TBEA has reportedly been approved to participate in bids for reactors starting from financial year 2027. However, she clarified that restrictions have not been completely lifted, suggesting no immediate risk of imports.

"It's not that the restrictions are lifted. So there is no risk of imports here at the moment. But yes, in the transmission space, where players were constrained on capacities and the average pricing in the market have shot very sharply. There we are hearing Chinese players, or they are factories which are based out in India are now being allowed to participate in future bids," Pugalia explained during an interaction with CNBC-TV18.

Market Outlook and Valuation Impact

IIFL's analysis suggests that valuations are expected to correct for capital goods companies as the market factors in increased competition and associated risks. However, the impact on earnings may be limited due to existing capacity constraints in the sector.

Pugalia noted that market prices were expected to correct regardless of TBEA's entry, but the announcement of Chinese-owned manufacturers being re-allowed in the market will create a sentiment overhang. "We don't perceive or foresee any material impact on earnings or sudden crackdown on the market pricing, because capacities are constrained," she added.

Government Position

It is important to note that no official notification from the government has been issued regarding the allowance of Chinese companies to bid for government contracts. The market reaction appears to be based on industry reports and expert interactions rather than confirmed policy changes.

Capital goods stocks came under significant selling pressure following reports suggesting the government may reconsider its stance on Chinese company participation in select project biddings. BHEL led the sector-wide decline as investors evaluated the potential competitive implications for domestic manufacturers, particularly those operating in the power equipment segment.

Market Reaction and Analyst Commentary

The sell-off reflected investor concerns about heightened competition potentially affecting Indian capital goods companies. However, market participants emphasized the speculative nature of these developments, with no official government confirmation available.

Ankit Soni from Mirae Asset Sharekhan provided detailed analysis of the situation, describing the reports as recommendations from the finance minister regarding reconsideration of Chinese player restrictions in government bids. According to Soni, the reports also suggest that power equipment imports from China have been impacting India's plans to expand thermal power capacity to approximately 307 gigawatts over the next decade.

Competitive Landscape Concerns

Analysts highlighted several key concerns regarding potential policy changes:

• Aggressive pricing strategies typically employed by Chinese companies
• Rapid execution capabilities that could challenge domestic players
• Historical competitive challenges faced by Indian companies even during restriction periods
• Potential stock derating across the capital goods sector

Soni noted that domestic companies had struggled to fully offset Chinese competition even during previous ban periods, suggesting potential material impacts if official policy changes occur.

Industry Skepticism and Policy Realism

Despite the market reaction, industry participants expressed skepticism about the likelihood of such policy reversals. Soni indicated that the industry largely views these potential changes as unrealistic at the current stage, emphasizing the need for official government clarity before drawing definitive conclusions.

The analyst stressed that current price movements represent sentiment-driven selling rather than fundamental sector shifts, with future stock performance likely dependent on official policy announcements and their specific implementation details.

Market Outlook

Market experts suggest that clarity from policymakers will be crucial in determining the next direction for capital goods stocks. The sector's sharp reaction demonstrates investor sensitivity to competitive dynamics, particularly regarding Chinese company participation in government projects. Until official confirmation emerges, analysts recommend cautious interpretation of current market movements and await concrete policy announcements for more definitive sector assessment.