Motilal Oswal Financial Services expects execution growth to remain healthy for capital goods companies in its coverage universe, driven by strong order inflows and robust order books. The brokerage has identified several sectors showing promising growth potential while maintaining a selective investment approach.

Sector-wise Growth Opportunities

The brokerage highlights strong ordering momentum across multiple sectors that are driving growth in the capital goods space:

Investment Strategy and Stock Selection

Motilal Oswal maintains a selective approach in its stock recommendations, particularly focusing on companies with strong execution capabilities and healthy order books. The brokerage has specifically highlighted L&T and Siemens Energy among its preferred picks in the capital goods sector.

Key Investment Considerations

• Order Book Strength: Companies with robust order books are expected to deliver consistent execution growth
• Sector Diversification: Multiple sectors contributing to overall growth momentum
• Selective Approach: Careful evaluation of domestic private sector opportunities

Market Outlook

The brokerage's positive outlook on the capital goods sector reflects the underlying strength in infrastructure development and industrial expansion across India. Strong government initiatives in defense and renewable energy sectors are expected to provide sustained growth opportunities for well-positioned companies.

While ordering remains strong across various segments, Motilal Oswal emphasizes the importance of selective stock picking, particularly in the domestic private sector, to identify companies with the best growth prospects and execution capabilities.

As preparations for Union Budget 2026-27 gather pace, Motilal Oswal Financial Services (MOFSL) anticipates clear policy intent to accelerate domestic demand, revive private investment, and generate employment. The brokerage has identified five stocks across auto, agriculture, defence, financials, and infrastructure themes that could deliver strong gains for investors.

Budget Focus Areas and Policy Direction

The budget is expected to focus on income-tax, GST, and customs simplification to enhance ease of doing business and support fiscal consolidation. Research Analysts Sneha Poddar and Rekha Jaat noted targeted support for agriculture, MSMEs, manufacturing, infrastructure, higher defence capex, EVs, and renewables through credit and incentives.

A strong capital expenditure thrust is anticipated across highways, logistics, defence, rail freight corridors, and connectivity. The budget will also emphasize skilling, rural prosperity, women empowerment, AI adoption, climate action, and digital finance to anchor India's next phase of economic expansion.

Market Context and Challenges

The finance ministry started work on Union Budget 2026-27 from October 9 as per a Department of Economic Affairs circular. These preparations come against the backdrop of an additional 50% US tariff on most Indian goods and other external headwinds, raising risks to India's growth and jobs outlook and prompting calls for stronger export sector support.

Five Stock Recommendations

MOFSL has assigned equal 20% weight to each recommended stock across diverse sectors:

TVS Motor Company

TVS Motors continues to outperform peers and is well-positioned to benefit from the budget's push to boost domestic consumption and rural demand through higher allocations, income support, and infrastructure spending. Key triggers include improving rural sentiment, strong entry-level recovery, and sustained two-wheeler demand. The Apache and Ntorq maker's market share gains, easing discounts, and margin expansion provide strong earnings visibility, making it MOFSL's top pick in OEMs.

UPL

The diversified agrochemical leader is positioned to benefit from union budget push on rural prosperity via higher agri credit, MSME support, and value-chain strengthening, lifting farmer incomes and crop-protection demand. The company's strengths include stronger volumes, export tailwinds, improved working-capital discipline, and post-bond-repayment balance-sheet strength. Rising focus on speciality chemicals supports solid 2HFY26 growth.

Bharat Dynamics (BDL)

Bharat Dynamics has a robust ₹50,000.00 crore order pipeline over five years, with ₹20,000.00 crore targeted in 2-3 years, aligning with expected defence capex surge and infrastructure push. Recent ₹2.50 lakh crore DAC approvals for missiles, undersea warfare, and naval arms leverage BDL's tactical and strategic expertise, propelling FY31 turnover to ₹100.00 billion via indigenisation and lower provisions.

M&M Financial Services

M&M Financial is positioned for Union Budget 2026-27 benefits via rural prosperity, MSME credit, and employment focus, driving PV and tractor loan growth amid surging volumes from festive demand, GST cuts, and restocking. The company targets ₹3.00 lakh crore in assets under management by 2030 at 18-20% CAGR, bolstered by AI underwriting, lower credit costs, controlled opex, and margin stability for strong earnings visibility in retail portfolios.

Dalmia Bharat

The cement company benefits from the budget's infrastructure capex surge, PMAY rural housing, and urban projects, driving cement volume growth. Dalmia Bharat is a low-cost cement producer with high blending ratios, green power, and low freight costs. The company is targeting 62 mtpa capacity by FY28, with cost optimisation endeavours likely to lift EBITDA margins amid sector consolidation.