Why did Hitachi Energy, BHEL, Cummins India and other capital goods stocks crash up to 6.5% today? Explained

GE Vernova T&D India, Apar Industries, Cummins India, and Siemens were among nearly a dozen stocks from the capital goods space that continued to witness heavy losses in the Indian stock market for the third straight day on Monday, January 12, with declines of up to 6.5%.

The sell-off in these stocks was triggered on Thursday after the news agency Reuters reported that India’s Finance Ministry plans to lift a five-year-old restriction on Chinese companies bidding for government contracts worth USD 700–750 billion, aiming to revive commercial ties amid easing diplomatic tensions.

The report, citing two sources, said that officials were working to remove the registration requirement. "Both sources, who declined to be named as they were not authorised to speak publicly, said Indian Prime Minister Narendra Modi's office will make the final decision," it added.

As part of the “Atmanirbhar Bharat” package announced by the Central government in May 2020, an amendment was made in the General Financial Rules (GFR) disallowing global tenders up to ₹200 crore in government procurement of goods and services.

Further, the Government of India in July 2020 imposed restrictions (Rule 144) on bidders from countries that share a land border with India on grounds of defence of India or matters directly or indirectly related thereto, including national security.

Over 10 stocks fall amid Chinese participation concerns

Amid worries over Chinese participation in Indian government contracts, GE Vernova T&D India shares crashed another 6.4% to the day's low of ₹2,704 apiece, extending its fall to a third straight day.

It was followed by Apar Industries, Cummins India, Kirloskar Oil Engines, Bharat Heavy Electricals, Hitachi Energy India, Thermax, Inox Wind, Zen Technologies, and Siemens Energy India, which fell between 2% and 4%.

Tracking losses in key constituents, the BSE Capital Goods index tanked another 2.4% to reach the day's low of 64,003. Though the index recovered some of its early losses, it still traded 1.20% lower as of 2:45 PM.

Can Chinese participation disrupt India’s power equipment players?

Domestic brokerage firm Systematix Institutional Equities expects a limited impact on the transformer, switchgear, substation, and grid automation businesses. GE Vernova T&D, Siemens Energy, Hitachi Energy, TARIL, and CG Power are involved in these segments.

The brokerage noted that even though BHEL has the greatest overlap with Chinese OEMs in terms of product offerings, its order book provides visibility of over seven years, shifting the focus toward execution and margin realisation of its prevailing orders.

It said L&T has some overlapping businesses but expects limited impact, given its existing competition with Chinese players in the Middle East and significant exposure to services-led businesses.

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