PL Capital expects the capital goods coverage universe to report a mixed performance in Q4 FY26. This forecast is influenced by a blend of domestic strengths and mounting international headwinds. The sector faces headwinds stemming from geopolitical tensions and lingering supply chain disruptions.
These macro pressures are resulting in execution slippage and delays in order finalisations, particularly impacting the export business of numerous firms in the coverage universe. Despite the mixed outlook, healthy momentum in T&D-led products and domestic execution remains a key positive driver.
Mixed Outlook Looms for Capital Goods Sector in Q4 FY26
Overall, the brokerage anticipates a challenging period for the sector. The Middle East geopolitical tensions, for instance, are weighing on the international business aspects of many key players. This environment complicates order finalisation and slows down global dispatches.While there is continued sluggishness expected in export-oriented businesses, the sector maintains strong domestic order visibility. Furthermore, the PL Capital report notes the persistent softness in consumables companies, adding to the cautious market sentiment.
Sector Growth Forecasts Amid Geopolitical Headwinds
PL Capital projects significant, yet bifurcated, growth for the sector. The brokerage expects the quarter to see Year-on-Year (YoY) revenue and EBITDA growth of 10.6%/6.9%. These figures are based on the current mix of domestic resilience and global slowdown.Crucially, the forecasted growth of 12.4%/6.6% YoY is observed when Larsen & Toubro's performance is excluded. The robust domestic execution for T&D-focused Engineering, Procurement, and Construction (EPC) players is expected to partially offset the softness seen in the defense and EPC segments.
L&T Leads Capital Goods Picks Amid Divestment Strategy
Larsen & Toubro (L&T), Ingersoll-Rand India, and Voltamp Transformers have been identified by PL Capital as top picks within the sector. L&T, in particular, is viewed as being well-placed to capitalize on strong international prospects originating from the Middle East region.However, the near-term geopolitical situation requires constant monitoring, as execution in the Middle East—which constitutes roughly 37% of the total order book—could face immediate headwinds. To strengthen its financial footing, L&T is undertaking a divestment of non-core development assets, such as Hyderabad Metro and Nabha Power.
This strategic divestment is expected to improve the company’s balance sheet and return ratios. It simultaneously frees up capital for incremental investments into rapidly emerging areas, including green energy, electrolyzers, semiconductors, and data centers.
Key Strengths and Areas for Monitoring
PL Capital maintains a 'Buy' rating on L&T, valuing its core business at an attractive Price-to-Earnings (P/E) of 22x for the Sep'27E. The brokerage has derived a target price of Rs 4,806, utilizing a SoTP-derived method.Overall, the sector's resilience will be driven by healthy execution momentum within T&D-led product companies. The ability of companies to monetize domestic orders while managing international risks will determine the final performance in Q4 FY26.
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