The capital goods sector has underperformed during the past few years, which is evident from the difference in the returns of the BSE Capital Goods index and the Sensex. The BSE Capital Goods has underperformed the Sensex by 2.9% in the past one year, by 12.4% in past three years and by 20.5% in past five years. The reasons for this underperformance include lack of demand for the large scale equipment, increase in stalled or abandoned projects that were in implementation, very few new projects, and weak capex cycle of both government and the private sector. In addition, weak consumption activity in the economy and liquidity pressures have also negatively affected the prospects of the sector. The capital goods sector plays a significant role in employment generation and economic growth. Due to the reluctance of the private sector, government capex is necessary to kickstart the investment activity. Such government expenditure fell 28% in the first quarter of 2019-20. However, recent data on the government capex has ignited hope for the revival of the capital goods sector. According to a report by SBI Cap Securities, the capital expenditure of the government has significantly picked up in the month of July 2019… Read full this story
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