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Buy Industrials ahead of CAPEX – Morgan Stanley

June 16, 2010

Corporate capital spending in India is likely to surprise on the upside. Capex plans for the next six months imply a 20% YoY increase in calendar 2010. According to the AlphaWise survey, confidence in the growth outlook drives capex – and 89% of corporates expect better domestic economic conditions in 2010 than in 2009.

Capex plans are focusing on productivity gains and brownfield expansions. Capex looks most sensitive to changes in growth expectations, and our survey indicates that key trends to monitor as signposts are commodity prices, consumer confidence, inflation and policy (in that order). Corporates seem intensely focused on productivity gains versus raw capacity additions.

Corporates seem intensely focused on productivity gains versus raw capacity additions. Investors should watch out for margin improvement in the coming quarters. Commodity prices are key to business sentiment.Corporates are also hunting for mergers and acquisitions. Companies do not seem to be worried about the availability of capital as they make their capex decisions.

Looks like there is no stopping for the Indian industrialists.

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