* Three years into the capex downturn, is the cycle or at least the
capital goods stock prices close to bottoming out? At a similar time in the last cycle, an order inflow uptick had started looking imminent and revival took roots a year later. Uptrend in stock prices preceded actual P&L recovery by about four quarters, but only after a sustained uptick in order inflow became apparent. Evidence of such a recovery is still some time away in this cycle. However, the stocks might start consolidating on initial signs of revival in award activity. * *Bottom of the current downturn might not be close: *The last investment down cycle lasted for six years from 2HFY97 to 1HFY03. We are three years into the current down cycle, which began in 2HFY11. Change in cyclical trajectory last time was driven first by the hitherto marginal infra sectors such as metro and national highways and was then propelled by revival in the power and industrial sectors. At a similar time in the last cycle, positive changes in these segments had started becoming apparent. However, in the current cycle, visibility across sectors remains clouded now. * Order inflow revival presaged P&L recovery by more than a year: * Delhi Metro orders started picking up from FY99, followed by a surge in NHAI orders in FY01 and a sustained uptick in power orders from FY02. Order inflows for most cap good stocks bottomed out in FY00-01 whereas their P&L bottomed a year later in FY01-02. Last time, a broadbased revival in award activity in 2-3 large sectors proved a good leading indicator of change in trajectory. ** *Stocks bottomed after evidence of order inflow revival: *Most cap goods stocks bottomed in 1QFY01-2QFY02 during the last cycle in line with order inflow recovery and not in mere anticipation. In the three years over CY00-02, L&T traded between 4x to 21x 1yr fwd P/E with an average of 6.9x versus current 1yr fwd P/E at 15.7x. During the period ABB traded between 8.7x to 20x with at an average of 12.8x versus 28x currently. The period of consolidation was marked by high volatility in stock prices, likely driven by scrutiny of evidence of revival. -- -- NIFTYVIEWS.COM NOW A FREE OPEN SOURCE WEBSITE. http://www.niftyviews.com/ Disclaimer :- "The opinions expressed by the members on this board are based on their individual experience and perceptions and to share information with other members with the best of intentions to help fellow members in investment decisions as equity investment is a risky venture.The administrator of www.Niftyviews.com just provide a platform for the authors to express their opinion and take no gurantee for the genuineness of the same." --- You received this message because you are subscribed to the Google Groups "TEAM STOCKRESEARCHERS" group. To unsubscribe from this group and stop receiving emails from it, send an email to [email protected]. For more options, visit https://groups.google.com/groups/opt_out.
