Surprising that this sector does not have a thread (at least I couldn't find any while browsing) while it was a darling of the street before January fall.

I guess with the long term story of India remaining intact, this sector will bounce back sooner than later.

This is particularly true since many investments (expansions, capacity additions) in various sectors have already been committed which will go unabated for couple of years in spite of increasing fears of slowdown. So this sector may be the first to turn around.

Any comments please.

Capital goods sector will continue to show strong growth for next few years;

and I also agree about your investments argument.

Growth has an amplified effect on capital goods.

For example, when lot of new power plants are coming up, demand for turbines is very high.

Once the power plants are in place, turbines are only needed when time for replacements come....which may take many years.

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The problem with capital goods stocks was that the valuations had become highly optimistic and there was no space for disappointment.

Many of the stocks were trading at 30,40,50 their annual earnings.

Even after the sharp correction in prices, capital goods sector is still one of the most expensive sectors in the markets.

If you look at the data on BSE Sectoral Indices, you will notice that the most expensive sectors are:

Power - 33.6 times earnings.
Capital Goods - 32.1 times earnings.
Realty - 30 times earnings..
FMCG - 29.5 times earnings...

Sensex is at 20.5 times earnings...

The prices are already discounting good growth for next 2-3 years.

If this year, growth of the Indian Economy slows more than expected, the stocks in this sector may get hit hard.

That's why. for stocks like BHEL, Praj Industries and Larsen & Toubro, I suggest that investors don't make their 100% investment in a single day.

If you are investing in capital goods stocks, keep some cash ready to average at lower levels.

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Nicely presented.
I agree with you that this sector is overall growth related and our GDP growth will play a major role in the fortunes of this sector. I would also agree about BHEL as a capital goods company but classification of Praj and Larsen and Toubro in the same category sometimes surprises me.

Whatever I know about Praj then it is focussing on distillery industry while Larsen and Toubro has so many businesses including Engineering and Construction, Heavy Engineering, Defense, Infotech, Electrical and Electronics and so on...
Is it the amount of revenues coming from Capital Goods focussed activities that forces them to be classified as Capital Goods Companies?

Any company that produces goods which are used for production of other goods, is classified as a "capital goods company".

Source.

Praj Industries makes machinery for ethanol and biofuel plants and so can be classified as a capital goods company.

I agree Larsen and Toubro is a mixed case.

Both Praj Industries and Larsen & Toubro are part of the BSE Capital Goods Index.

Other construction companies like Gammon India are also included in the index.

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Any idea or comments about why BHEL is going down so much... it seems to be beating market in the falling speed.

BHEL isn't expensive at around Rs 1440, but as overall market sentiment is poor, further downside cannot be ruled out.

Next major support for the stock is around 1140-1150

See this thead on BHEL.

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