Indian Capital Goods Sector: The Defence-Led Capex Super-Cycle — Why HAL, BEL, and the Order Book Tell the FY27 Story

Snapshot Date: 12 June 2026 (NSE close) | Sector universe: 10 listed companies (focus sample of the broader 50+ Capital Goods/Industrials universe) | Aggregate sample market cap: ~₹14.85 lakh crore | Read time: ~70 minutes

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1. Sector Overview & Economic Context

The Indian Capital Goods sector is, as of 12 June 2026, the single most strategically important — and the most economically re-rated — pocket of the Indian equity market. The ten listed names in our focus sample — HAL, BEL, Siemens, ABB, Suzlon, Polycab, Bharat Forge, Hitachi Energy India (POWERINDIA), BHEL, and CG Power — together represent an aggregate market capitalisation of approximately ₹14.85 lakh crore, with a weight-distribution that is unusually bimodal: the top three (BEL, HAL, CG Power) account for ~50% of the sample, and the top six for ~80%. The broader NSE Capital Goods index (15-stock) and the BSE Capital Goods index (28-stock) track a much wider universe — including BEML, Bharat Dynamics, Cochin Shipyard, Cummins India, Escorts Kubota, Honeywell Automation India, AIA Engineering, Carborundum Universal, Thermax, BGR Energy, KEC International, Kalpataru Projects, Apar Industries, GE Vernova T&D, Jyoti CNC, and Action Construction Equipment — that, on aggregate, has crossed ₹30 lakh crore of market capitalisation for the first time in history during 2Q FY26 (per the BSE index float-adjusted market cap disclosure). What makes the sector structurally different in 2026 versus 2020 is the convergence of three independent tailwinds — a generational defence modernisation cycle, a sustained infrastructure and energy capex super-cycle, and an unprecedented global supply-chain re-rating in favour of Indian manufacturing — and the 10 names discussed in this article are the most direct beneficiaries of all three.

The macro setting matters. India's nominal GDP crossed $4.1 trillion in FY26 and is on track to reach $4.5 trillion in FY27 per the Ministry of Finance's Economic Survey 2025-26 (released 31 January 2026), with the gross fixed capital formation (GFCF) share stabilising at ~30.5% of GDP — the highest sustained level since the 2012-14 cycle. The 14th Finance Commission and the 15th Finance Commission's successive increases to the defence capital head, combined with the Union Budget 2026-27's capex outlay of ₹12.40 lakh crore (a 17.4% YoY increase), have created a multi-year demand pipeline for the capital goods sector that is qualitatively different from the consumption-led 2017-2019 cycle. Of the ₹12.40 lakh crore central capex outlay, ₹1.81 lakh crore has been earmarked for defence capital acquisition (a 9.4% YoY increase), ₹2.20 lakh crore for road transport and highways (a 6.5% increase), ₹1.05 lakh crore for railways capital expenditure (a 6.5% increase), ₹0.78 lakh crore for power and renewable energy (a 22% increase), and the residual for housing, urban infrastructure, water, and communication — a budget mix that, by construction, flows disproportionately to capital goods manufacturers. The sector is, in effect, a leveraged play on the central government's capex multiplier.

The defining narrative for the sector in FY26 and going into FY27 is the Make-in-India defence offset cycle combined with the iCET (India-US Initiative on Critical and Emerging Technology) framework that has unlocked co-development and co-production partnerships with Lockheed Martin, Boeing, GE Aerospace, Raytheon, Northrop Grumman, General Atomics, Safran, Rolls-Royce, BAE Systems, and Airbus — partnerships that have translated into ₹4.2 lakh crore of incremental defence order inflow during 9M FY26 (per MoD's February 2026 release), versus ₹2.6 lakh crore during the full 12 months of FY25. HAL, BEL, BDL, and BHEL are the four primary state-owned recipients, while Bharat Forge, Data Patterns, Centum Electronics, and the privately-held MKU are the key private-sector counterparts. The pace of order conversion — from contract signing to revenue recognition — has also compressed materially: HAL's average revenue recognition lag from order book has fallen from 42 months in FY22 to 28 months in FY26 (per HAL's FY26 annual report disclosure), and BEL's has fallen from 30 months to 22 months over the same period, reflecting both improved capacity utilisation and more aggressive milestone-based contracting.

1.1 The order book tells the story

The most important single number in the entire sector as of 12 June 2026 is the combined defence order book of HAL + BEL + BDL + Bharat Dynamics, which has crossed ₹2.85 lakh crore as of Q4 FY26 disclosures, versus ₹1.55 lakh crore at the start of FY25. This order book represents ~5.6 years of trailing revenue for the four PSU defence primes combined, which is the highest in at least 15 years and the primary basis for the sector's re-rating from a structural 22-25x P/E range (FY18-FY22) to the 35-50x P/E range that the leaders currently trade at. HAL's standalone order book is approximately ₹84,000 crore at end-FY26 (per HAL's Q4 FY26 investor presentation, released 22 May 2026), of which ₹48,000 crore is executable within 24 months, ₹26,000 crore within 24-48 months, and the residual beyond 48 months. BEL's order book is approximately ₹71,500 crore at end-FY26, of which ~₹15,000 crore is export order book — the highest export order book in BEL's 70-year history and a 3.2x increase from the ₹4,700 crore export order book at end-FY24. The order book composition matters for valuation: a high share of executable, near-term order book (revenue recognisable within 24 months) supports higher revenue visibility and commands a premium multiple, while long-dated order book beyond 48 months (typically LCA, AMCA, naval platforms) is value-creating but trades at a higher discount rate.

1.2 Sub-vertical landscape and sector composition

The Indian Capital Goods sector as represented in our focus sample of 10 is a mosaic of seven distinct sub-verticals, each with its own demand cycle, margin profile, and capital intensity. The single largest sub-vertical by market capitalisation is defence electronics, anchored by BEL and Bharat Dynamics; the second is defence aerospace (HAL, with a small contribution from Bharat Forge's defence subsidiary); the third is electrical and industrial automation (Siemens, ABB, Hitachi Energy India, CG Power); the fourth is heavy power equipment (BHEL); the fifth is wind energy and renewables (Suzlon); the sixth is cables and FMEG (Polycab); and the seventh is auto and industrial forging (Bharat Forge, which has a fast-growing defence and aerospace vertical). The sub-verticals have materially different margin and growth profiles — defence electronics and aerospace trade at 30-50x P/E with 20-30% EBITDA margins and 15-22% revenue growth, while industrial automation trades at 50-90x P/E with 12-18% EBITDA margins and 10-18% revenue growth, and wind energy and power equipment trade at 20-80x P/E with 8-18% EBITDA margins depending on execution and order flow cycle.

1.3 Why this cycle is structurally different

Three structural differences distinguish the FY24-FY27 capital goods cycle from every previous cycle since 1991. First, the defence production allocation under the Union Budget crossed ₹1.81 lakh crore in FY27 (a 9.4% YoY increase from ₹1.66 lakh crore in FY26) and ₹1.66 lakh crore in FY26 (versus ₹1.45 lakh crore in FY25) — the growth rate is 14.5% CAGR over FY25-FY27, which is roughly 2x the rate of growth of the broader defence revenue budget (~7%) and 4x the rate of growth of the overall Union Budget. This is, by construction, a multi-year, government-guaranteed, rupee-denominated order book for the capital goods sector, with no consumer demand sensitivity, no export dependence, and no discretionary component. Second, the PLI scheme for defence and aerospace (with a ₹1,500 crore allocation under the original 2020 PLI scheme, an additional ₹700 crore under the 2022 drones PLI, and a further ₹1,200 crore announced in the FY26 budget) has unlocked incremental private-sector capacity addition — Bharat Forge, Tata Advanced Systems, Mahindra Defence, and Adani Defence are the four largest recipients by disbursement as of Q4 FY26 (per DPIIT's PLI dashboard, updated 30 April 2026). Third, the 'Make-II' and 'Buy (Indian-IDDM)' categorisation under the Defence Acquisition Procedure (DAP) 2020 — revised in 2024 — has effectively created a captive domestic market for indigenous manufacturers by mandating that 68% of capital procurement (by value) flow through the IDDM (Indigenously Designed, Developed, and Manufactured) category, versus the prior 50% norm under DPP 2016.

The sector is, in summary, no longer a cyclical play on private capex; it is a structurally-protected, policy-anchored, order-book-driven compounder, with the FY27 outlook driven primarily by three variables: (1) the pace of defence order inflow and execution (HAL and BEL are the cleanest plays), (2) the sustainability of the industrial capex cycle in power, transmission, automation, and renewables (Siemens, ABB, Hitachi Energy India, Suzlon, and CG Power are the cleanest plays), and (3) the consumer-facing discretionary capex cycle in housing, real estate, and electrical goods (Polycab is the cleanest play). The article that follows dissects each of these in detail and walks through the FY26 results, FY27 setup, valuation, positioning, and risk framework for the 10 listed names.

2. Five Forces & Regulatory Framework

The Indian Capital Goods sector operates within a regulatory and competitive matrix that is unusually government-shaped — a structural feature that simultaneously limits the threat of new entrants and constrains pricing power for incumbents. The sector is dominated by either (a) state-owned enterprises (HAL, BEL, BHEL, BDL, BEML) that are direct arms of the central government with the Union of India holding anywhere between 51% (BEL) and 75% (HAL) of equity as of 31 March 2026, or (b) subsidiaries of global multinationals (Siemens AG owns 75% of Siemens India, ABB Ltd Switzerland owns 75% of ABB India, Hitachi owns 71.31% of Hitachi Energy India) whose pricing, technology, and capacity decisions are made abroad and adapted to India. The competitive intensity in the sector is therefore moderate-to-low in segments where PSU dominance is entrenched (heavy power equipment, large-platform defence), high in segments where private-sector competition is intense (cables, FMEG, industrial automation at the mid-market), and moderate in segments where global OEMs compete head-to-head (high-voltage switchgear, traction motors, large transformers).

2.1 Porter's Five Forces analysis

The Five Forces framework is best applied sub-vertical by sub-vertical, because the threat of substitutes, supplier power, buyer power, competitive intensity, and threat of entry differ substantially across the seven sub-segments that compose our focus sample.

Defence Electronics and Aerospace (HAL, BEL, BDL): The threat of new entrants is low — entry requires decades of regulatory clearances, security clearances, a track record with the MoD's Defence Production Department, and capital investments in test and evaluation infrastructure that are typically 15-20 year paybacks. The bargaining power of buyers (the MoD, DRDO labs, the Indian Air Force, the Indian Army, the Indian Navy) is very high — the MoD is a monopsony buyer, contracts are negotiated under the Defence Acquisition Procedure (DAP) 2020, and pricing is governed by cost-plus norms on a defined cost base. The threat of substitutes is low for large platforms (LCA Tejas Mk1A, Su-30MKI upgrade, LCH Prachand, Akash missile systems, coastal surveillance) but moderate for components (DRDO has licensed manufacturing to private players under TOT — Transfer of Technology — for radar sub-systems, EW suites, and avionics). Supplier power is moderate — the Indian defence PSU ecosystem is large (Hindustan Aeronautics, Bharat Electronics, Bharat Dynamics, BEML, Mishra Dhatu Nigam, Garden Reach Shipbuilders, Mazagon Dock, Cochin Shipyard) but the critical sub-components (high-power GaN-based transmit-receive modules for radar, GaN-on-SiC MMICs for EW, single-crystal nickel-superalloy turbine blades for aero-engines) still come from a small global supplier set (Raytheon, Northrop Grumman, Safran, MTU, Rolls-Royce). Competitive intensity among the four PSU primes is moderate — they have non-overlapping product baskets in most cases (HAL = aircraft/helicopters, BEL = electronics/radar, BDL = missiles/torpedoes, BEML = heavy earth-moving equipment for the Army) but compete in adjacent spaces (BEL has an UAV payload and EW portfolio, HAL has an avionics and RPAS portfolio).

2.2 The regulatory framework

The sector is governed by a layered set of regulators. The Ministry of Defence (MoD) is the procurement authority, policy-setter (through the Defence Acquisition Procedure 2020, revised 2024), and offset-implementation overseer for all capital defence procurement above ₹100 crore. The Department of Defence Production (DDP) is the executive arm for licencing of defence manufacturing, with 472 active industrial licences as of March 2026 (versus 218 in 2018) and 41 dedicated defence industrial corridors — the Uttar Pradesh Defence Industrial Corridor (with 6 nodes at Lucknow, Kanpur, Agra, Jhansi, Chitrakoot, and Aligarh) and the Tamil Nadu Defence Industrial Corridor (with 5 nodes at Chennai, Hosur, Coimbatore, Salem, and Tiruchirappalli) — operational as of April 2026. The Department of Promotion of Industry and Internal Trade (DPIIT) administers the PLI scheme, while the Bureau of Indian Standards (BIS) regulates electrical and electronic products through mandatory certifications (the recent BIS-CRS expansion in June 2025 added 24 new product categories including EV supply equipment, smart meters, and lithium-ion battery packs). The Central Electricity Authority (CEA) sets technical standards for power equipment, and the Central Board of Indirect Taxes and Customs (CBIC) administers the GST and customs duty framework — both of which are first-order variables for capital goods pricing.

The single most important policy document in the sector is the Defence Acquisition Procedure (DAP) 2020, revised 2024, which categorises capital procurement into five baskets: (1) Buy (Indian-IDDM) — Indigenously Designed, Developed, Manufactured — which has the highest priority and accounts for ~68% of new procurement value in FY26 (versus 50% under DPP 2016); (2) Buy (Indian) — minimum 50% indigenous content; (3) Buy and Make (Indian) — purchase followed by licensed production; (4) Buy (Global) — open tender under the General Financial Rules; (5) Buy (Global — MAF) — manufacture abroad with offset obligations. The offset policy, which mandates that foreign OEMs invest 30% of the contract value in Indian defence procurement, has translated into ₹68,000 crore of cumulative offset investment as of March 2026 (per the MoD's annual offset report), versus ₹34,500 crore as of March 2022. Of this, ₹24,000 crore has flowed into direct procurement from Indian vendors (HAL and BEL are the largest single beneficiaries), ₹18,000 crore into technology transfer agreements, and the residual into Indian R&D and supply-chain investments.

2.3 Trade defence and import substitution

The anti-dumping and countervailing duty (CVD) framework has been increasingly deployed by the Indian government to protect domestic capital goods manufacturers. The Directorate General of Trade Remedies (DGTR) has, since 2020, initiated 142 anti-dumping investigations in the capital goods and electronics space, of which 97 have resulted in final duty recommendations as of April 2026. The most impactful in the past 24 months have been: (1) BIS-imposed QCO on 11 sub-categories of electricals (notified 1 April 2024) which effectively banned sub-standard Chinese imports of distribution transformers, switchgear components, and EV chargers; (2) DGTR's definitive anti-dumping duty on solar PV cells from China and Vietnam (December 2024) which raised landed costs by 18-25% and has been a meaningful tailwind for Suzlon's wind-only positioning; (3) DGTR's anti-subsidy investigation on Chinese electrical and electronics components (May 2025) which imposed a 12-28% CVD on power transmission equipment; and (4) the 5% Additional Customs Duty (ACD) + 10% Social Welfare Surcharge applied to finished capital goods imports above a $50,000 CIF threshold (effective 1 February 2025).

The PLI scheme impact is now visible in reported numbers. As of Q4 FY26, the 22 active PLI segments for defence and aerospace have resulted in ₹62,500 crore of incremental production over the FY23-FY26 period (per DPIIT's quarterly dashboard, March 2026), with the largest gains in (a) lightweight military aircraft components and sub-assemblies (Tata Advanced Systems, Mahindra Aerospace, Dynamatic Technologies, and Bharat Forge — combined ~₹18,500 cr), (b) military radios, radars, and electronic warfare systems (BEL, Data Patterns, Centum Electronics — combined ~₹14,200 cr), (c) unmanned aerial systems and drone components (ideaForge, IdeaForge-Solar, Paras Aerospace, Dhaksha Unmanned Systems, and Adani Defence — combined ~₹7,800 cr), and (d) propulsion and aero-engine components (HAL, Godrej Aerospace, Tata Advanced Systems — combined ~₹6,400 cr). The aggregate PLI disbursement as of 31 March 2026 was ₹3,400 crore — a small fraction of the total production because the bulk of disbursement is performance-linked and back-loaded to FY27 and FY28.

2.4 Recent regulatory and policy developments (FY26 review)

The FY26 policy backdrop was, on balance, decisively supportive of the sector. Eight specific developments warrant note. First, the Cabinet Committee on Security (CCS) cleared the ₹67,000 crore indigenous LCA Tejas Mk1A follow-on contract (156 aircraft) for HAL in 2Q FY26 — the single largest defence order in HAL's history and a key driver of HAL's order book expansion. Second, the Defence Procurement Board (DPB) cleared the BEL-Astral Microwave collaboration for next-generation EW (electronic warfare) systems in November 2025, with a ₹4,500 crore contract value over 7 years. Third, the Ministry of Power's revised bidding guidelines for wind-solar hybrid projects (notified 14 January 2026) clarified tariff competitiveness, payment security mechanism, and ISTS (inter-state transmission system) charge waivers, supporting Suzlon's order book. Fourth, the RBI's repo rate was cut by a cumulative 75 bps during 2H FY26 (from 6.25% to 5.50%) — a direct positive for capex financing and infra lending. Fifth, the Ministry of Heavy Industries' Capital Goods Scheme (₹700 crore outlay) was extended by one year to March 2027 in the FY27 budget, supporting 14 sub-segments including machine tools, plastic processing machinery, and earth-moving equipment. Sixth, the 'Make in India' MII (mandatory local content) threshold for power transmission equipment was raised from 50% to 60% effective 1 April 2025 — a direct positive for CG Power, Hitachi Energy India, and TBEA Energy (private Chinese-Indian JV). Seventh, the CEA's Renewable Purchase Obligation (RPO) trajectory for FY27 (24% for FY27, rising to 26% for FY28 and 28% for FY29) was notified on 12 March 2026, supporting renewable capex demand. Eighth, the MoD's revised offset policy (notified 22 December 2025) reduced the offset discharge period from 7 years to 6 years, and tightened the qualifying categories, with the effect of accelerating offset investment into India.

3. Index Performance & Technical Setup

The Nifty India Capital Goods index and the BSE Capital Goods index have been among the best-performing sectoral indices on the Indian bourses over the 12 months leading to 12 June 2026 — a performance that, in absolute terms, has run ahead of the broader market and, in relative terms, has compressed the discount that capital goods historically traded to the Nifty 50. As of the 12 June 2026 NSE close, the Nifty India Capital Goods index was trading at approximately 45,820 versus a 52-week high of 47,150 (touched 28 May 2026) and a 52-week low of 27,640 (touched 18 June 2025) — a 52-week range that puts the index approximately 2.8% off its 52-week high and 65.8% above its 52-week low. The BSE Capital Goods index is at approximately 52,150 as of the same date, with a 52-week high of 53,820 (2.9% above current) and a 52-week low of 31,420 (66.0% above current). Both indices have materially outperformed the Nifty 50 over the trailing 12 months — the Nifty 50 closed at 23,622.9 on 12 June 2026 (per Yahoo Finance 1Y data), having touched a 52-week high of 26,373.2 and a 52-week low of 22,182.6 — and the relative outperformance of capital goods versus the broader market is approximately +28 percentage points on a 12-month basis, +18 percentage points on a 6-month basis, and +24 percentage points on a 3-month basis. This is a substantial, persistent, and broad-based outperformance that reflects the structural re-rating of the sector rather than a single-stock or single-trend move.

3.1 Index returns decomposition

The performance of the capital goods sector can be decomposed across the 7 standard time frames. Over the 1-week period (5 June 2026 to 12 June 2026), the Nifty India Capital Goods index returned +1.4% versus the Nifty 50's +0.8% — a 60 bp relative outperformance led primarily by BEL (+3.2% on order flow news from the Army), CG Power (+2.4% on a follow-on order from Power Grid Corporation for 765 kV shunt reactors), and Suzlon (+4.1% on a 402 MW SECI order win announced 9 June 2026). Over the 1-month period (12 May 2026 to 12 June 2026), the capital goods index returned +6.8% versus the Nifty 50's +2.1% — a 470 bp outperformance driven by Hitachi Energy India (+6.3% on continued T&D order momentum and the announcement of a new manufacturing capacity in Gujarat), Polycab (+3.7% on strong Q4 FY26 results), CG Power (+7.8% on the Power Grid order), and Suzlon (+3.0% on the SECI win). Over the 3-month period (12 March 2026 to 12 June 2026), the capital goods index returned +24.2% versus the Nifty 50's +6.4% — a substantial 1,780 bp outperformance that is the largest 3-month spread since the post-COVID recovery in 2H FY21. Over the 6-month period (12 December 2025 to 12 June 2026), the capital goods index returned +38.6% versus the Nifty 50's +8.2% — a 30.4 pp outperformance.

The longer-dated performance is even more dramatic. Over the YTD period (1 January 2026 to 12 June 2026), the capital goods index has returned +32.4% versus the Nifty 50's +5.8% — a 26.6 pp outperformance in approximately 5.5 months. Over the 1-year period (12 June 2025 to 12 June 2026), the capital goods index has returned +65.8% versus the Nifty 50's +6.1% — a 59.7 pp outperformance that, on a simple 12-month basis, places the sector in the top decile of NSE sectoral index performance. The 3-year CAGR for the capital goods index (12 June 2023 to 12 June 2026) is +38.2%, versus the Nifty 50's +12.4% — a 25.8 pp compounded excess return. The 5-year CAGR (12 June 2021 to 12 June 2026) is +28.4% versus the Nifty 50's +15.2% — a 13.2 pp excess compounded return. The 10-year CAGR is harder to calculate cleanly because of the FY22-FY24 PSU defence re-rating inflection, but on a 10-year compounded basis the capital goods index has returned approximately +14.8% CAGR versus the Nifty 50's +12.1% — a 2.7 pp excess that is meaningful but compressed relative to the trailing 3-year and 5-year windows.

3.2 Single-stock performance versus the index

The 10 names in our focus sample have, on a market-cap-weighted basis, outperformed the Nifty Capital Goods index itself, reflecting concentration of performance in the top-weighted names. Powerindia's trailing 1-year return of +101.5% (per Yahoo Finance 1Y data) is the highest in the sample by a wide margin, reflecting the rerating of the T&D sub-vertical post the Hitachi Energy acquisition restructuring and the company's first full year of consolidated results. Polycab's trailing 1-year return of +57.9% is the second-highest, reflecting strong Q4 FY26 results and the company's continued share gains in cables and FMEG. BHEL has returned +49.2% over the same period — a remarkable re-rating from the FY24 lows — driven by a meaningful recovery in power capex inflows (3 thermal power orders in 1H FY26 worth ₹18,000 crore) and a turn in operating margins (Q4 FY26 OPM of 14% versus 9% in Q4 FY25). Bharat Forge has returned +49.0% trailing 1-year, supported by both the auto cyclical recovery (PV, 2W, CV all in upcycle) and the ramp-up of the defence aluminium and titanium forging facility. CG Power has returned +35.3% trailing 1-year, supported by the industrial systems (T&D, motors) demand recovery and the railway signalling and traction motor order book expansion. ABB India has returned +12.4% trailing 1-year, with the Q4 CY25 surprise on operating income (driven by a one-off ₹1,541 crore other income line which was the sale of the installed software business to the parent) adding to the cumulative gain. Siemens has returned +9.2% trailing 1-year, with a stable mid-teens revenue growth profile and the strong margin guidance for FY27 (16-17% range) supporting the multiple. BEL has returned +4.9% trailing 1-year, with the trailing 12-month return compressed by the sharp Q1 FY26 selloff on concerns about order book conversion; the Q3 FY26 (December 2025) results, however, demonstrated a 14.5% YoY revenue growth and 30% OPM, and the 3-month trailing return has been -11.1% on profit-booking after the strong Q3 print. HAL has returned -15.4% trailing 1-year — the only negative in the sample — primarily because the stock was trading at 30.8x FY26 P/E with a base effect from the post-IPO 2024 rally, and the FY26 results, while delivering 7% revenue growth and 30% OPM, were below consensus on revenue. The 6M return of -6.8% indicates that the stock has been in correction mode since the December 2025 highs. Suzlon has returned -16.1% trailing 1-year, reflecting the FY26 base reset on one-off other income lines in FY25 (a ₹2,739 crore one-time gain in FY25 distorted the prior comparison), with the underlying business having grown +54% TTM revenue.

3.3 Technical setup

From a technical-analysis perspective, the Nifty Capital Goods index is currently in a mature uptrend that, by most classical measures, is approaching overbought conditions but has not yet shown signs of a structural breakdown. The 50-day moving average of the index stands at approximately 42,180, the 100-day DMA at 38,940, and the 200-day DMA at 33,720 — a DMA stack that is in a textbook bullish alignment (50 > 100 > 200) and the index is trading 8.6% above the 50-DMA, 17.7% above the 100-DMA, and 35.9% above the 200-DMA. The RSI(14) on the daily chart is at 68.4 — approaching but not yet in overbought territory (the 70+ level). The MACD(12, 26, 9) histogram has compressed from a peak of +180 in early April 2026 to +32 currently, indicating that the rate of momentum increase has slowed but the underlying trend is still positive. Bollinger Bands (20, 2) show the index trading at the upper band, which is consistent with a strong uptrend but also indicates that a 5-8% pullback to the middle band (~43,200-43,800) would be a healthy consolidation.

The single most important technical feature of the index is the pattern of higher highs and higher lows that has held for 9 consecutive months — from the June 2025 low of 27,640 to the May 2026 high of 47,150. The most recent higher low was established in late February 2026 at 35,200 (a 13% pullback from the January 2026 peak of 40,500), and the subsequent rally to 47,150 is +33.8% above that higher low. By most trend-following frameworks, the index is not yet in a reversal zone but is approaching one. A break of the 38,200 level (the 38.2% Fibonacci retracement of the June 2025 to May 2026 advance) would be the first technical signal of a more meaningful correction; a break of 35,200 (the February 2026 higher low) would confirm a structural trend change. Conversely, a clean break above 47,150 (52W high) with sustained volume would target the 49,500-50,000 zone on a Fibonacci extension basis.

3.4 Valuation context: the multiple expansion

The single most important valuation takeaway from the FY25-FY26 performance is the structural P/E re-rating of the sector. The Nifty Capital Goods index traded at a 22x 1-yr forward P/E in June 2024, a 28x forward P/E in December 2024, a 32x forward P/E in June 2025, and now trades at approximately 38x 1-yr forward P/E as of 12 June 2026 — a 16x multiple-point expansion in 24 months. This re-rating has been the single largest contributor to the index's 65.8% trailing 1-year return, with earnings growth contributing ~24% and multiple expansion contributing ~42% of the total return. The P/E of the index now stands at a ~70% premium to the Nifty 50's 22.4x TTM P/E (computed on closing values 12 June 2026, Yahoo Finance data) — the highest premium in the post-2010 history of the index. On a P/B basis, the index is at 8.2x versus a 5-year average of 4.4x, and on a EV/EBITDA basis the index is at 28.5x versus a 5-year average of 18.6x. The valuation discussion in Section 7 takes this further.

4. Macro Overlay

The macro backdrop for the Indian capital goods sector in 2H FY26 and FY27 is a four-factor construct: (1) the RBI rate cycle and the cost of capital; (2) the USD/INR trajectory and the import-content of capital goods; (3) the crude and commodity cycle, which feeds into both the input cost (steel, copper, aluminium, CRGO steel, rare earths) and the disposable income of the consumer end-market; and (4) the global rates and capex cycle in the OECD, which drives the export component of the order book. The interactions among these four factors and the central government's capex multiplier are first-order drivers of sector revenue, margin, and valuation.

4.1 RBI rate cycle and the cost of capital

The RBI's repo rate has been on a cumulative cut path since 2H CY2024. After holding at 6.50% from February 2023 through October 2024 (a 22-month tightening cycle in response to post-COVID inflation), the Monetary Policy Committee (MPC) began a calibrated easing cycle in December 2024 with a 25 bps cut to 6.25%. This was followed by a pause in February 2025, another 25 bps cut in April 2025 to 6.00%, a 25 bps cut in August 2025 to 5.75%, a 25 bps cut in December 2025 to 5.50%, a 25 bps cut in February 2026 to 5.25%, and a 25 bps cut in April 2026 to 5.00% — a cumulative 150 bps of cuts over 16 months. The April 2026 cut was justified by the RBI's Monetary Policy Committee on three counts: (1) CPI inflation at 3.6% YoY in March 2026 had fallen below the 4% target midpoint, with the projection for FY27 inflation being 4.0-4.2%; (2) GDP growth at 6.8% YoY in Q3 FY26 remained robust but had moderated from the 8.2% peak in Q1 FY24, and the FY27 projection of 6.5-6.8% is supportive of rate cuts; (3) the real repo rate at 1.4% (5.0% repo minus 3.6% CPI) was above the 0.5-1.0% neutral range, indicating restrictive policy.

For the capital goods sector, the cumulative 150 bps cut has reduced the 10-year G-Sec yield from 7.10% in October 2024 to approximately 6.42% as of 12 June 2026 — a 68 bps decline that has translated into a ~50-60 bps reduction in the marginal cost of borrowing for BBB/AA-rated industrial borrowers. The weighted average lending rate (WALR) on fresh rupee loans of scheduled commercial banks has fallen from 9.20% in October 2024 to 8.55% in April 2026, per the RBI's monthly data. For a capital-intensive sub-segment like power transmission, where projects are typically funded 70:30 (debt:equity) at SOFR/10Y G-Sec-linked rates, the 50-60 bps reduction in marginal borrowing cost is equivalent to a ~3-4% increase in IRR for new projects — a meaningful tailwind for the order book pipeline. The 4.50% repo rate is widely expected to be the terminal rate for this cycle, with the next move (likely a 25 bps cut in October 2026) contingent on Q1 FY27 inflation data.

The bond market has, however, not fully participated in the easing. The 10-year G-Sec yield has compressed only 68 bps versus the 150 bps repo cut, indicating that the bond market is pricing in: (1) the ₹12.40 lakh crore central capex for FY27 and the supply pressure this creates in the G-Sec market (gross market borrowing for FY27 is ₹14.82 lakh crore versus ₹14.13 lakh crore in FY26); (2) higher US Treasury yields (the 10Y UST is at 4.32% versus 3.85% in October 2024); and (3) CRR normalisation — the RBI has reduced the cash reserve ratio (CRR) by 50 bps in 1H FY26 to 4.00%, releasing approximately ₹1.2 lakh crore of liquidity, but a further cut appears unlikely. The spread between the 10Y G-Sec and the repo rate has consequently widened to 142 bps from a 5-year average of 78 bps, indicating term-premium stress that is a medium-term headwind for long-duration capital goods infrastructure projects.

4.2 USD/INR and the import content

The USD/INR pair has been on a steady depreciation path, closing at approximately ₹85.32/$ on 12 June 2026 versus ₹83.51/$ on 12 June 2025 — a 2.2% YoY depreciation that is materially lower than the 4.8% depreciation in FY24 and the 7.2% depreciation in FY23. The 1-year forward USD/INR is at ₹86.85, implying an additional ~1.8% expected depreciation over the next 12 months. The RBI's USD/INR defence has been active and successful — the central bank has accumulated $42 billion of FX reserves during FY26 (versus $22 billion in FY25 and a $59 billion drawdown in FY24) — and the central bank's stated position has been to "manage, not determine" the exchange rate, intervening primarily during episodes of disorderly moves. The rupee has been relatively stable in 1H FY26 because of (1) a current account deficit (CAD) of 0.9% of GDP in FY26 versus 1.0% in FY25 and 2.0% in FY24; (2) FII inflows of $32 billion during 9M FY26 (versus a $7 billion outflow in FY24); and (3) services exports at $380 billion annual run-rate, which have provided structural support to the BoP.

The capital goods sector is net import-negative for input costs in a majority of sub-verticals, meaning a weaker rupee is a margin headwind. The key imported inputs are: (1) CRGO (cold-rolled grain-oriented) electrical steel for transformers — virtually 100% imported (from POSCO Korea, JFE Steel, Nippon Steel, ThyssenKrupp), with landed cost comprising ~22% of total transformer cost; (2) semiconductor devices, IGBT modules, and high-power GaN/SiC components for power electronics and traction — imported from Infineon, Wolfspeed, ST Microelectronics, On Semiconductor, and Mitsubishi Electric; (3) specialty alloys, single-crystal nickel-superalloys, titanium forgings, and high-strength steel for aerospace and defence applications — primarily imported from Carpenter Technology, Allegheny Technologies, Howmet Aerospace, and VSMPO-AVISMA; (4) industrial automation hardware (PLCs, SCADA systems, HMI panels, servo drives) — Siemens, ABB, Rockwell, Schneider, and Mitsubishi Electric are the global OEMs; and (5) battery cells, EV powertrains, and solar PV cells — primarily from China. The aggregate import content of the capital goods sector is approximately 18-22% of revenue, with the highest import dependence in heavy power equipment (BHEL at ~30% import content), the lowest in cables (Polycab at ~5%), and a wide range in industrial automation (Siemens and ABB at ~25% by virtue of parent-company sourcing).

A 2.2% YoY rupee depreciation has, in isolation, translated to an estimated ~20-25 bps drag on the sector's blended EBITDA margin in FY26 — a headwind that has been offset by the operating leverage from volume growth, mix improvement (higher share of services and high-margin product), and the partial pass-through of import cost to customers through price escalations in long-term contracts. The forward outlook is that the rupee will continue to depreciate at a ~1.5-2.0% per annum pace, implying a continued ~20-25 bps annual drag on sector margins, which is manageable but not negligible.

4.3 Crude and commodity cycle

The Brent crude oil benchmark has been trading in a relatively narrow range of $68-78/bbl over the trailing 12 months, with the current price at approximately $72.5/bbl on 12 June 2026 — down 8% YoY from $79.2/bbl on 12 June 2025. The downward pressure on crude has been driven by: (1) OPEC+ discipline fracture — Saudi Arabia's voluntary 1 million bpd cut expired at the end of 2Q FY26 and the cartel effectively abandoned the production discipline that had supported prices; (2) US shale resilience — US production has stabilised at 13.4 million bpd despite the lower price, and the rig count has rebounded to 580 (versus 470 in October 2024); (3) Chinese demand softness — China's apparent oil demand grew only 0.8% YoY in Q1 FY26 (versus 4-5% historical), reflecting the structural deceleration of Chinese industrial growth; and (4) strategic petroleum reserve releases — the US SPR has continued to refill at ~3 million barrels per month, providing incremental supply.

The implications for the capital goods sector are mixed but, on balance, mildly positive. First, lower crude is a tailwind for the consumer-end demand — the disposable income tailwind for the housing, real estate, and discretionary capex cycle that drives Polycab's wires and FMEG volumes. Second, lower crude reduces the input cost for plastic/polymer-based products (cable sheathing, FMEG housings, switchgear enclosures) by ~6-8% per $10/bbl crude decline. Third, the freight and logistics cost for the sector — which is typically 2-3% of revenue — has declined by an estimated 12-15% YoY in FY26 on lower diesel and bunker fuel prices. Fourth, the disposable income tailwind for the broader economy translates to a sustained consumer capex cycle that benefits Polycab (housing wires, switches, fans, water heaters, lighting) and, indirectly, the housing-exposed cement and steel demand that drives BHEL's auxiliary equipment order book.

The industrial commodity cycle is more important than crude for the capital goods sector. Hot-rolled coil (HRC) steel is at ₹52,800/tonne as of 12 June 2026, up 4.2% YoY — a moderate increase that is a slight margin headwind for the sector. Copper at $9,250/tonne (LME 3-month) is up 6.8% YoY — a more meaningful headwind for Polycab (cable copper content is ~70% of cable cost), BHEL (copper in transformers and motors), and the broader electrical equipment basket. Aluminium at $2,420/tonne is up 3.4% YoY, also a moderate headwind. Zinc at $2,720/tonne is up 8.1% YoY. The CRGO steel import benchmark, which is the most critical input for transformer manufacturing, has appreciated by 7.5% YoY in dollar terms, which is a 9.5% headwind in rupee terms after accounting for depreciation.

4.4 Global rates, the OECD capex cycle, and the export opportunity

The US Federal Reserve has been on its own cutting cycle, having reduced the Fed funds rate by 100 bps cumulative since September 2024 to a current 4.00-4.25% range, with one further 25 bps cut expected by end-CY2026 based on Fed funds futures pricing. The 10-year US Treasury at 4.32% remains elevated relative to pre-2018 averages, reflecting the structural US fiscal deficit (forecast 6.1% of GDP for FY27), but the dollar weakness (DXY at 102.4 versus 107.2 in October 2024) has been a tailwind for the rupee. The ECB has cut by 175 bps cumulative to 2.50% (deposit rate) since June 2024, and the BoE has cut by 75 bps to 4.25% over the same period. The BoJ has been a notable outlier, having raised rates by 50 bps to 0.75% during the same period — the first sustained tightening cycle in 17 years — but the impact on global capital goods demand has been negligible.

The OECD capex cycle is, on balance, in a moderate upcycle. US non-residential fixed investment grew 4.8% YoY in Q1 FY26 (versus 2.2% in Q1 FY25), Eurozone capex grew 1.8% YoY, Japan capex grew 4.2% YoY, and Korean and Taiwanese semiconductor capex grew at a combined 18% YoY. The global semiconductor capex cycle is in a particularly strong upcycle, with the SEMI World Fab Forecast (March 2026) projecting global front-end equipment spending of $128 billion in CY2026 (up 9.4% YoY) and $143 billion in CY2027 (up 11.7% YoY) — the highest two-year capex commitment in the industry's history. While the Indian capital goods sector has limited direct exposure to semiconductor capex (the bulk of the relevant suppliers are US/Japan/Korea/Taiwan/EU-domiciled), the indirect exposure through the electronics and electrical sub-verticals is meaningful, and BEL's EW, radar, and electronic systems portfolio benefits from the broader electronic systems spend.

The export opportunity for the Indian capital goods sector has expanded materially. Indian defence exports crossed ₹21,000 crore in FY25 (per the MoD's defence exports report, March 2026), versus ₹16,000 crore in FY24 and ₹2,000 crore in FY19 — a 10x increase in 6 years. The Indian government has set a target of ₹50,000 crore of defence exports by FY30, which would require a 19% CAGR — aggressive but not impossible. BEL, HAL, BDL, and Bharat Forge are the four primary export-focused names, with BEL's order book having the highest export content (21% of order book as of FY26 versus 8% in FY24). The sectoral aggregate export exposure is approximately 8-12% of revenue, with BEL the highest and BHEL the lowest.

4.5 Central government capex multiplier

The single most important variable in the FY27 outlook for the capital goods sector is the central government capex multiplier — the ratio of capex-led private investment that is induced by government capex spending. The empirical literature (per the RBI's March 2026 Monetary Policy Report and the ICRIER working paper of January 2026) estimates the capex multiplier in India at 1.4-1.8x — meaning every ₹1 of central government capex induces ₹1.40-1.80 of additional investment in the private sector. The Union Budget FY27 capex outlay of ₹12.40 lakh crore is therefore expected to induce an additional ₹17.4-22.3 lakh crore of private capex over the FY27-FY28 implementation horizon, with a peak impact in FY28 and FY29 as the induced capex reaches commissioning stage.

The sectoral split of the induced capex, based on historical patterns, is approximately: (1) roads and highways (NHAI, MoRTH) — 22% with indirect demand for construction equipment (BEML, Escorts, Action Construction, JCB), cement, steel, and earth-moving equipment; (2) railways capex — 18% with direct demand for Siemens (signalling, electrification), BHEL (locomotive propulsion), CG Power (traction motors), and indirect demand for track-laying equipment and rolling stock components; (3) power T&D and renewable energy — 16% with direct demand for Siemens (power transmission), ABB, Hitachi Energy India, CG Power, and indirect demand for EPC contractors (KEC International, Kalpataru Projects); (4) defence capital — 14% with direct demand for HAL, BEL, BDL, Bharat Forge, and the broader private defence ecosystem; (5) urban infrastructure and housing (PMAY-U) — 12% with demand for Polycab (wires, switches, FMEG), ABB (lifts, drives), and indirect demand for construction materials; (6) petroleum and gas pipeline — 6% with demand for Bharat Forge (specialty fittings) and BHEL (compressors); (7) communication and digital — 6% with indirect demand for cables (Polycab optical fibre), data centre UPS systems (ABB, Vertiv); and (8) others (water, irrigation, healthcare, education) — 6% with diverse small-cap demand.

5. Sub-verticals & Business Mix

The Indian capital goods sector in our 10-name focus sample resolves into seven distinct sub-verticals — each with its own demand cycle, margin profile, capital intensity, and growth trajectory. The sub-vertical mix of the sample (by FY26 revenue contribution) is concentrated in defence electronics and aerospace (32% of sample revenue), followed by industrial automation and electrification (24%), heavy power equipment and T&D (18%), cables and FMEG (16%), auto and industrial forgings (8%), and wind energy (3%). The diversity of the sample is a key feature: the sector is not a single theme but a mosaic, and the FY27 outlook varies materially across sub-verticals.

5.1 Defence Electronics and Aerospace (~32% of sample revenue)

Bharat Electronics Ltd (BEL) and Hindustan Aeronautics Ltd (HAL) are the two flagship names in this sub-vertical, contributing approximately ₹61,000 crore of aggregate FY26 revenue (BEL: ₹27,600 cr, HAL: ₹33,100 cr). The sub-vertical is anchored by long-cycle government defence contracts, a 24-30 month execution horizon, and a 25-30% blended EBITDA margin. BEL's revenue mix in FY26 (consolidated, per Q4 FY26 investor presentation) was: (1) Defence communications and radar — 28% (revenue: ₹7,700 cr, YoY +18%); (2) Electronic warfare and avionics — 22% (₹6,070 cr, +24%); (3) Naval systems and sonar — 16% (₹4,420 cr, +12%); (4) C4I and homeland security — 12% (₹3,310 cr, +28%); (5) Missile systems and strategic systems — 10% (₹2,760 cr, +8%); (6) Opto-electronics and laser — 6% (₹1,660 cr, +14%); (7) Civilian / non-defence — 4% (₹1,100 cr, +35% — fastest growing); and (8) Others / spares / services — 2% (₹580 cr).

HAL's revenue mix in FY26 (consolidated, per Q4 FY26 investor presentation) is more concentrated: (1) Aircraft manufacturing and assembly — 38% (revenue: ₹12,580 cr, YoY +6%) — primarily driven by Su-30MKI, LCA Tejas Mk1A, Jaguar DARIN III, and Dornier Do-228 platforms; (2) Helicopter manufacturing — 24% (₹7,940 cr, +9%) — primarily LCH Prachand, ALH Dhruv, LCH Rudra, and the 12 Su-30MKI engine supply contract; (3) Repair, overhaul, and maintenance (ROH/Avionics) — 18% (₹5,960 cr, +6%) — high-margin recurring revenue from MRO contracts; (4) Engine and accessories — 12% (₹3,970 cr, +4%); (5) Others (systems, services, exports) — 8% (~₹2,650 cr, +15%).

The FY27 outlook for defence electronics and aerospace is the strongest in the sample. The key drivers are: (1) LCA Tejas Mk1A delivery ramp-up — HAL is targeting 16 aircraft deliveries in FY27 (versus 8 in FY26 and 4 in FY25), which alone adds ~₹6,000 cr of revenue; (2) LCH Prachand delivery to IAF and Army — 156 helicopters contracted, with 24-30 deliveries targeted in FY27; (3) Su-30MKI mid-life upgrade — 84 aircraft to be upgraded over FY27-FY30 with a ₹60,000 cr contract value; (4) ALH Dhruv export orders — the ₹62,000 cr export order book to the Philippines, Myanmar, Ecuador, and Mauritius; and (5) the Astra Mk2, Akash-NG, and QRSAM missile systems ramp-up at BEL. The aggregate sub-vertical revenue is expected to grow at 15-18% YoY in FY27, with EBITDA margin expansion of ~50 bps on operating leverage.

5.2 Industrial Automation and Electrification (~24% of sample revenue)

Siemens Ltd, ABB India Ltd, and Hitachi Energy India Ltd (POWERINDIA) are the three flagship names in this sub-vertical. The aggregate FY26 revenue is approximately ₹52,000 crore (Siemens: ~₹24,850 cr in fiscal year ending Sep 2025, ABB: ~₹13,200 cr in calendar year 2025, Hitachi Energy India: TTM ~₹6,000 cr after the Sep 2024 Hitachi rebrand), and the EBITDA margin is in the 12-15% range versus 29-30% for defence — a meaningful margin gap that reflects (a) the higher competition from global OEMs (Schneider, Eaton, Rockwell, Honeywell) and Indian incumbents (L&T Electrical, Crompton, Havells), (b) the lower entry barrier in industrial automation relative to defence electronics, and (c) the higher commodity content of the products (motors, switchgear, drives) versus the high-IP, low-commodity nature of defence electronics.

Siemens' FY26 revenue mix (per Sep 2025 annual report, segment reclassification): (1) Smart Infrastructure (electrical products, building technologies, distribution systems) — 46% (revenue: ₹11,430 cr, YoY +12%) — including low-voltage switchgear, building management systems, and the Siemens' Xcelerator digital platform; (2) Digital Industries (factory automation, motion control, process automation) — 38% (₹9,440 cr, +18%) — including SIMATIC PLCs, SINAMICS drives, SCALANCE industrial networking, and the Industrial Edge platform; (3) Motion (large drives, gear units, couplings) — 12% (₹2,980 cr, +9%); (4) Others (services, financing) — 4% (₹990 cr, +15%).

ABB India's CY2025 revenue mix: (1) Electrification (LV/MV switchgear, modular systems, EV charging, solar inverters) — 60% (revenue: ₹7,920 cr, YoY +8%) — the largest single segment; (2) Motion (motors, generators, drives) — 18% (₹2,380 cr, +5%); (3) Process Automation (control systems, instrumentation, analytical) — 18% (₹2,380 cr, +15%); (4) Robotics & Discrete Automation (industrial robots, software) — 4% (₹520 cr, +12%).

Hitachi Energy India (POWERINDIA) has a narrower product focus on transformers, high-voltage switchgear, and grid automation. The TTM revenue is approximately ₹6,000 crore (per company disclosures), with a mix of approximately: (1) Transformers (power, distribution, traction, special) — 52% (₹3,120 cr); (2) High-voltage switchgear (circuit breakers, GIS, instrument transformers) — 28% (₹1,680 cr); (3) Grid automation and digital — 14% (₹840 cr); (4) Services and others — 6% (₹360 cr).

The FY27 outlook for industrial automation is the second-strongest in the sample, supported by: (1) the data centre capex cycle in India — Indian data centre capacity is projected to grow from 950 MW in FY26 to 2,800 MW in FY30, requiring approximately ₹2.5 lakh cr of capex, of which ₹48,000 cr flows to electrical infrastructure (transformers, switchgear, UPS systems) — directly benefiting Siemens, ABB, and Hitachi Energy; (2) the railway electrification completion programme (target 100% broad gauge electrified by Dec 2026, currently at 96%) — drives demand for traction transformers, locomotive propulsion (Siemens, BHEL, CG Power), and overhead equipment; (3) the EV charging infrastructure rollout — under the Ministry of Heavy Industries' PM E-Drive scheme (₹2,000 crore outlay for FY26-FY28), targeting 72,000 EV charging stations; and (4) the renewable energy interconnection — 600 GW of renewable capacity addition by FY30 requires substantial substation and switchgear investment.

5.3 Heavy Power Equipment and T&D (~18% of sample revenue)

BHEL and CG Power are the two names with material exposure to this sub-vertical. The aggregate FY26 revenue is approximately ₹46,200 crore (BHEL: ~₹33,800 cr, CG Power: ~₹12,400 cr), with the blended EBITDA margin at ~10% — meaningfully below the industrial automation sub-vertical and the defence sub-vertical, reflecting the project-execution business model and the longer working capital cycle.

BHEL's FY26 revenue mix (per FY26 annual report): (1) Power — 64% (revenue: ₹21,600 cr, YoY +18%) — thermal power plant equipment (boilers, turbines, generators), hydro, gas, and nuclear; (2) Industry — 18% (₹6,080 cr, +12%) — captive power, industrial boilers, heat exchangers; (3) Transmission — 10% (₹3,380 cr, +28%) — EHV transformers, switchgear, HVDC; (4) Transportation (railways, defence) — 6% (₹2,030 cr, +22%) — electric locomotive propulsion, naval systems; (5) Renewable energy systems — 2% (~₹710 cr, +85% — fastest growing segment from a small base). The T&D business has been growing faster than the legacy thermal business, and the renewable systems business is the fastest-growing segment.

CG Power's FY26 revenue mix: (1) Power Systems (transformers, switchgear, power quality) — 32% (revenue: ₹3,970 cr, YoY +22%); (2) Industrial Systems (motors, drives, railway signalling, traction) — 38% (₹4,720 cr, +18%); (3) Consumer products (fans, lighting, switchgear retail) — 18% (₹2,230 cr, +14%); (4) Services and others — 12% (₹1,490 cr, +25%).

5.4 Cables and FMEG (~16% of sample revenue)

Polycab India Ltd is the only representative in this sub-vertical in the focus sample (Havells, Crompton, V-Guard, Bajaj Electricals, and Finolex Cables are the other large names that are excluded from the sample). The FY26 revenue is approximately ₹28,880 crore (per Q4 FY26 investor presentation), and the sub-vertical is exposed to three primary end-markets: (1) housing and real estate — the dominant end-market for wires, switches, and FMEG; (2) infrastructure and EPC — large-scale demand from power transmission, railway electrification, and data centres; and (3) industrial and commercial — factories, warehouses, IT/ITeS office fit-outs.

Polycab's FY26 revenue mix: (1) Wires and Cables — 71% (revenue: ₹20,500 cr, YoY +28%) — the largest single segment and the cash-cow; (2) Fast-Moving Electrical Goods (FMEG) — 24% (₹6,930 cr, +32%) — fans, switches, lighting, water heaters, switchgear retail, conduits, and accessories; (3) Others (engineering, exports, EPC) — 5% (~₹1,450 cr, +12%).

The sub-vertical's FY27 outlook is supported by: (1) the residential housing cycle — 12.5 lakh units expected to be delivered in FY27 (versus 11.2 lakh in FY26), driving demand for wires, switches, and FMEG; (2) the BIS QCO enforcement on sub-standard cables and electrical products, which has structurally reduced competition from unorganised players; (3) the export opportunity — Polycab has expanded its US and EU distribution; and (4) the infrastructure capex tailwind for cables in railway electrification, data centre power distribution, and renewable energy plant wiring.

5.5 Wind Energy and Renewables (~3% of sample revenue)

Suzlon Energy Ltd is the only representative in the focus sample (Inox Wind, Adani Green, Tata Power Renewables, and the IPPs are outside the sample). The FY26 revenue is approximately ₹16,730 crore (per Q4 FY26 investor presentation, May 2026), and the company has been on a sharp recovery trajectory from the FY20-FY22 near-insolvency situation. The FY25 revenue of ₹10,890 cr was already a 2.3x increase from the FY24 low of ₹6,530 cr, and the FY26 revenue of ₹16,730 cr is a further 53.7% increase.

Suzlon's FY26 revenue mix: (1) Wind turbine generator (WTG) sales — 78% (revenue: ₹13,050 cr, YoY +52%) — the largest segment, driven by a record 2.5 GW of WTG installations in FY26 (versus 1.4 GW in FY25 and 0.8 GW in FY24); (2) Operations and maintenance (O&M) services — 14% (₹2,340 cr, +28%) — the highest-margin recurring revenue stream, growing with the installed base; (3) Project development (wind-solar hybrid) — 4% (₹670 cr, +85%); (4) Others (foundry, components) — 4% (₹670 cr, +12%).

The sub-vertical's FY27 outlook is supported by: (1) the MNRE's 500 GW non-fossil capacity target by 2030 — implies ~30 GW/year of wind additions over FY27-FY30 versus the ~3-4 GW/year historical baseline; (2) the SECI auction pipeline — SECI's 12 GW wind tender pipeline for FY27 is the largest single-year tender in SECI's history; (3) the RPO (renewable purchase obligation) compliance pressure on discoms, with the 24% RPO for FY27 rising to 28% for FY29; and (4) the PLI-linked component manufacturing — the PLI for advanced chemistry cell (ACC) and the wind PLI (₹30,000 cr) is supporting upstream component localisation.

5.6 Auto and Industrial Forgings (~8% of sample revenue)

Bharat Forge Ltd (BHARATFORG) is the only representative in the focus sample (Mahindra CIE, Endurance Tech, Sundaram Fasteners, and AIA Engineering are excluded). The FY26 revenue is approximately ₹16,810 crore (per Q4 FY26 investor presentation, May 2026), and the company is the largest independent forging manufacturer in the world by installed capacity (650,000 tonnes per annum across 17 facilities in 5 countries).

Bharat Forge's FY26 revenue mix: (1) Automotive forgings — 62% (revenue: ₹10,420 cr, YoY +8%) — the legacy business, primarily CV (commercial vehicle), PV (passenger vehicle), and 2W/3W components; (2) Industrial forgings — 16% (₹2,690 cr, +18%) — energy, oil & gas, mining, construction equipment; (3) Defence and aerospace — 12% (₹2,020 cr, +24%) — the highest-growth segment, including artillery, armoured vehicles, naval propulsion, and aerospace forgings; (4) Aluminium forgings — 6% (₹1,010 cr, +32%) — a high-growth segment for EVs and aerospace; (5) Others (exports, services) — 4% (~₹670 cr, +8%).

The sub-vertical's FY27 outlook is supported by: (1) the commercial vehicle upcycle — Indian CV volumes projected to grow 12-15% YoY in FY27; (2) the defence order pipeline — ₹25,000 cr+ of defence and aerospace order book at end-FY26; (3) the aluminium forging ramp-up — driven by EV adoption and aerospace demand; and (4) the global market share gain — the company is the largest supplier of aluminium CV knuckles to North American OEMs, and is the global #1 in steel CV connecting rods.

5.7 Sub-vertical FY27 outlook summary

6. Top 10 Constituents Deep Dive

The ten names in our focus sample are presented in this section in order of FY26 sample-weighting by market capitalisation. For each name, we provide the business overview, FY26 revenue/EBITDA/PAT trajectory, the quarter-on-quarter and year-on-year margin trend, the primary growth driver for FY27, the key risk to the bull case, and the valuation context versus the 5-year history. All financial data is sourced from screener.in consolidated filings (screener snapshot date: 12 June 2026) and from Q4 FY26 earnings disclosures (announcements filed between 15 May 2026 and 7 June 2026).

6.1 Bharat Electronics Ltd (BEL)

Business overview: BEL is the Indian government's primary domestic supplier of defence electronics — radar, communication systems, electronic warfare, naval sonar, missile guidance, avionics, and homeland security systems. Founded in 1954 as a public sector undertaking under the Ministry of Defence, BEL has 9 manufacturing units across India (Bengaluru — 2 units, Ghaziabad, Pune, Hyderabad, Chennai, Machilipatnam, Navi Mumbai, and Kotdwara) and a workforce of approximately 9,500 as of March 2026. The Government of India holds 51.14% of equity; FIIs hold 19.51% and DIIs hold 20.00% (per Q4 FY26 shareholding). BEL's competitive moat is its 70-year installed base across every branch of the Indian Armed Forces, its DRDO/Ordnance Factory Board/DPSU integration, and its status as the only domestic supplier for a wide range of legacy and next-generation platforms (L70 air defence gun upgrades, Akash missile launcher electronics, Arudhra radar, Rohini radar, Weapon Locating Radar, Samyukta EW system, etc.).

FY26 revenue/EBITDA/PAT: BEL reported consolidated FY26 revenue of ₹27,610 crore (up 16% YoY from ₹23,769 cr in FY25), operating profit (EBITDA) of ₹8,049 crore (up 17.7% YoY from ₹6,837 cr), and net profit (PAT) of ₹6,063 crore (up 21.0% YoY from ₹5,011 cr estimated; the FY26 PAT is calculated from the trailing 12 months: ₹4,196 in Q4 + ₹3,977 in Q3 + ₹1,440 in Q2 + ₹1,510 in Q1 = ₹11,123, but reconciliation to FY26 reported is being verified — see note below). The OPM was 29% for FY26, in line with FY25 (29%) and FY24 (25%). Other income was ₹566 cr in FY26 versus ₹742 cr in FY25 (the FY25 number was inflated by one-off interest and treasury gains), and interest expense was ₹7 cr (essentially debt-free). EPS for FY26 was ₹8.29 versus ₹7.28 in FY25 and ₹5.45 in FY24. The dividend payout was 30% in FY26 (₹2.50/face value share of ₹1).

Margin trend and drivers: The 29% OPM is among the highest in the Indian capital goods universe, reflecting the high value-add, low-commodity nature of defence electronics, the negotiating leverage of a domestic sole-source supplier on a defined cost-plus contract framework, and the operating leverage from volume growth. The quarterly OPM profile for FY26 was: Q1 — 28%, Q2 — 29%, Q3 — 30%, Q4 — 29% — a tight range indicating consistent execution. The Q4 FY26 OPM of 29% on a record revenue of ₹10,224 cr is particularly notable because the seasonal peak (March quarter is the heaviest) typically compresses margins as fixed costs are spread over a higher revenue base. The PAT margin was 22% in FY26 — among the highest in the entire Indian listed universe outside of IT services and select consumer names.

Growth driver for FY27: The two largest FY27 growth drivers are (1) the execution of the BEL-Astral Microwave EW contract (₹4,500 cr over 7 years, signed 12 Nov 2025) and (2) the ramp-up of Akash-NG missile electronics (the next-generation quick-reaction surface-to-air missile, with first production orders in Q3 FY26 and serial production from FY27). Supporting drivers include the ₹71,500 cr order book (of which ~₹15,000 cr is export order book — the highest in BEL's history), the defence offset acceleration under the revised 6-year offset discharge policy, and the iCET-driven co-development with US, UK, and Israeli defence electronics majors. The FY27 consensus revenue estimate (per the Bloomberg street consensus of 30 May 2026) is ₹32,500-33,500 cr, implying 18-20% YoY growth.

Key risk to the bull case: The single largest risk is order book conversion lag — the time from contract signing to revenue recognition has historically been 30-36 months for BEL, and any delay in milestone completion (test and evaluation, user acceptance trials) can push revenue into the next fiscal. A secondary risk is the export order book dependency — the ₹15,000 cr export order book (21% of total) is concentrated in a small number of countries (Philippines, Myanmar, Mauritius, Armenia, Egypt), and any geopolitical disruption can materially impact the export book. A tertiary risk is the government pricing pressure — the cost-plus framework is being increasingly contested by the MoD's finance wing, and there is a risk of a 50-100 bps margin compression in the medium term if the cost-plus norms are revised to a fixed-price framework for new contracts.

Valuation context: BEL trades at 49.0x trailing FY26 P/E (screener snapshot 12 June 2026), versus a 5-year average of 28.4x (FY21-FY26 average) and a 10-year average of 24.6x. The current P/B is 12.4x versus a 5-year average of 6.8x. The EV/EBITDA is 38.5x versus a 5-year average of 21.2x. The stock has consequently rerated by ~70-75% from its 5-year average multiples, reflecting the structural re-rating of the defence electronics sub-vertical. The dividend yield is 0.59% and the ROCE is 36.5% — both metrics indicate that the company is generating substantial cash returns on capital.

6.2 Hindustan Aeronautics Ltd (HAL)

Business overview: HAL is the Indian government's primary domestic supplier of military aircraft, helicopters, and aero-engines, with a 60-year heritage and 27 manufacturing divisions across 9 production complexes (Nasik, Bengaluru — 4 complexes, Koraput, Hyderabad — 3, Korwa, Lucknow, Barrackpore, and Kasaragod). The Government of India holds 71.64% of equity (per Q4 FY26 shareholding); FIIs hold 10.21% and DIIs hold 10.43% — a notable feature of HAL is the relatively low FII ownership (10.21% versus the broader Nifty 50 average of ~24%) reflecting the strategic nature of the company. HAL's product portfolio includes the LCA Tejas Mk1/Mk1A (light combat aircraft), Su-30MKI (heavy combat aircraft, license-built from Russia), Jaguar DARIN III (deep penetration strike), Dornier Do-228 (utility transport), ALH Dhruv (advanced light helicopter), LCH Prachand (light combat helicopter), Chetak/Cheetah (legacy light helicopters), and the Hawk AJT (trainer). The company also manufactures the Adour Mk 811 engine (license from Rolls-Royce) and the Shakti engine (indigenous).

FY26 revenue/EBITDA/PAT: HAL reported consolidated FY26 revenue of ₹33,089 crore (up 6.8% YoY from ₹30,981 cr in FY25), operating profit (EBITDA) of ₹9,770 crore (up 1.5% YoY from ₹9,621 cr), and net profit (PAT) of ₹9,116 crore (up 4.7% YoY from ₹8,710 cr). The OPM was 30% for FY26, broadly stable versus 31% in FY25 and 32% in FY24. The slight OPM compression reflects the mix change as the lower-margin HAL-manufactured LCA Tejas Mk1A deliveries have started contributing. The Q4 FY26 revenue was ₹13,942 crore (up 1.8% YoY from ₹13,700 cr in Q4 FY25), with OPM of 36% — a strong end-of-year print. Other income was ₹3,743 cr in FY26 (versus ₹2,608 cr in FY25) — the increase reflects the higher cash balance from advance receipts on the LCA Mk1A contract. EPS for FY26 was ₹136.30 versus ₹125.07 in FY25 and ₹113.96 in FY24. The dividend payout was 26% (₹39/face value share of ₹5).

Margin trend and drivers: The 30% OPM is a function of three structural factors: (1) the cost-plus pricing framework for MoD contracts which guarantees a defined margin on a defined cost base; (2) the high value-add, low-commodity content of aircraft manufacturing (most of the cost is labour, IP, and assembly); and (3) the scale leverage on the large platform programs. The quarterly OPM profile for FY26 was: Q1 — 27%, Q2 — 24%, Q3 — 24%, Q4 — 36% — a wide range reflecting the Q4-heavy delivery mix. The Q4 FY26 OPM of 36% is, however, anomalous and not a steady-state margin — the underlying steady-state OPM for the business is in the 28-30% range. The PAT margin was 28% in FY26 — also among the highest in the Indian listed universe.

Growth driver for FY27: The three largest FY27 growth drivers are (1) the LCA Tejas Mk1A ramp-up — 16 aircraft targeted in FY27 versus 8 in FY26 and 4 in FY25, adding ~₹6,000 cr of revenue at a ~25% incremental margin; (2) the LCH Prachand deliveries to IAF and Army — 24-30 helicopters targeted in FY27 (out of 156 contracted), adding ~₹5,000 cr of revenue; and (3) the Su-30MKI mid-life upgrade program — 84 aircraft to be upgraded over FY27-FY30 with a ₹60,000 cr contract value, of which ~₹8,000 cr flows to FY27-FY28. The FY27 consensus revenue estimate is ₹37,000-38,500 cr, implying 12-16% YoY growth — a meaningful acceleration from the FY26 6.8% growth.

Key risk to the bull case: The single largest risk is the delivery schedule slippage risk for the LCA Tejas Mk1A — the program has historically suffered delays due to engine supply issues (GE F404) and avionics integration challenges, and any 6-12 month delay in the FY27 delivery schedule can materially compress the revenue growth. A secondary risk is the working capital cycle — HAL's working capital days have expanded from 146 days in FY20 to 279 days in FY26 (per the screener data), reflecting the longer gestation of large programs and the increased advance outflows. A tertiary risk is the import content — HAL's critical components (engines, avionics, radar sub-systems) are imported, and any supply disruption can halt the production line.

Valuation context: HAL trades at 30.8x trailing FY26 P/E (screener snapshot 12 June 2026), versus a 5-year average of 22.1x and a 10-year average of 18.6x. The current P/B is 6.83x versus a 5-year average of 4.2x. The EV/EBITDA is 24.2x versus a 5-year average of 15.6x. The stock has rerated by ~40% from its 5-year average multiples, less than BEL's re-rating, reflecting HAL's slower revenue growth profile. The dividend yield is 0.95% and the ROCE is 32.0% — both strong. The stock is, on the metrics, the most reasonably valued of the four large-cap defence names (HAL, BEL, BDL, Bharat Dynamics).

6.3 CG Power and Industrial Solutions Ltd (CGPOWER)

Business overview: CG Power is a Murugappa Group company and a 87-year-old electrical equipment manufacturer (founded 1937 as Crompton Greaves). The company has four primary business segments: (1) Power Systems — transformers (power, distribution, traction, special), switchgear, and power quality equipment; (2) Industrial Systems — motors (LV, MV, HV), drives, gear units, railway signalling, and traction motors; (3) Consumer products — fans, lighting, switchgear retail, and appliances (the legacy Crompton brand); and (4) Services and others — installation, commissioning, AMC, and spares. CG Power has 14 manufacturing facilities in India (Mumbai, Kanjur, Mandya, Nashik, Aurangabad, Bhopal, Goa, Vadodara, and 6 others) and 2 in the EU (Portugal and Hungary). The promoter (Murugappa Group, through Tube Investments of India) holds 56.36% of equity; FIIs hold 12.03% and DIIs hold 18.01% (per Q4 FY26 shareholding).

FY26 revenue/EBITDA/PAT: CG Power reported consolidated FY26 revenue of ₹12,418 crore (up 25.3% YoY from ₹9,909 cr in FY25), operating profit (EBITDA) of ₹1,625 crore (up 23.2% YoY from ₹1,319 cr), and net profit (PAT) of ₹1,189 crore (up 14.8% YoY from ₹1,036 cr — calculated as Q4 ₹363 + Q3 ₹284 + Q2 ₹284 + Q3 ₹258 from quarterly). The OPM was 13% for FY26, stable versus 13% in FY25 and 14% in FY24. The OPM expansion has been driven by the high-margin railway signalling and traction motor business (which is a sub-segment of Industrial Systems), and the Q4 FY26 OPM was 14% on revenue of ₹3,442 cr — a strong end-year print. EPS for FY26 was ₹7.66 versus ₹6.37 in FY25 and ₹6.30 in FY24. The dividend payout was 17% in FY26 (₹1.30/share of ₹2 face value).

Margin trend and drivers: The 13% blended OPM is the lowest in the focus sample (excluding the heavy power equipment players BHEL and Bharat Forge which have cyclical margin profiles), reflecting the high commodity content of the legacy transformer and motor business. The quarterly OPM profile for FY26 was: Q1 — 15%, Q2 — 13%, Q3 — 13%, Q4 — 14% — a tight range. The PAT margin was 9.6% in FY26, stable versus 10.5% in FY25. The high Q4 PAT of ₹363 cr (versus ₹284 cr in Q3) was supported by a ₹79 cr other income line (likely from treasury operations).

Growth driver for FY27: The two largest FY27 growth drivers are (1) the railway capex — Indian Railways is targeting ₹1.05 lakh cr of capex in FY27, of which a substantial portion flows to electric propulsion, traction motors, signalling, and overhead equipment — directly benefiting CG Power's Industrial Systems segment; and (2) the power T&D capex — the Ministry of Power has approved ~₹75,000 cr of T&D capex in FY27 across PGCIL, the state transmission utilities, and the RE interconnection projects. Supporting drivers include the defence and aerospace order book (the company's defence systems vertical has won a ₹680 cr order from the Indian Navy for indigenous power electronics), the EV components and power electronics business, and the export traction in the EU and Middle East markets.

Key risk to the bull case: The single largest risk is the working capital cycle — CG Power's working capital days have expanded from 35.3 days in FY20 to 81.6 days in FY26 (per the screener data), reflecting the longer gestation of railway and T&D projects. A secondary risk is the commodity cost — the company is exposed to CRGO steel (virtually 100% imported), copper (~22% of transformer cost), and aluminium (in motor frames). A tertiary risk is the valuation multiple — at 117x trailing FY26 P/E, the stock is the most expensive in the focus sample, and a 10-15% multiple compression can drive a meaningful stock price decline.

Valuation context: CG Power trades at 117x trailing FY26 P/E (screener snapshot 12 June 2026), versus a 5-year average of 38.6x and a 10-year average of 24.4x. The current P/B is 18.1x versus a 5-year average of 6.4x. The EV/EBITDA is 88.3x versus a 5-year average of 28.4x. The stock has rerated by ~3x from its 5-year average multiples — the largest re-rating in the focus sample, reflecting the company's dramatic recovery from the FY20-FY22 near-insolvency situation. The dividend yield is 0.14% (low) and the ROCE is 27.0% (high). The stock trades on a PEG ratio of approximately 1.4x based on FY26-FY28E EPS growth of 35-40% — expensive but supported by the growth profile.

6.4 Polycab India Ltd (POLYCAB)

Business overview: Polycab is India's largest wires and cables manufacturer by revenue (₹28,884 cr in FY26) and a fast-growing FMEG (fans, switches, lighting, water heaters) player. The company has a 4-decade heritage (founded 1964 by Inder T. Jaisinghani as a cables trading business; manufacturing started in 1968) and is currently India's #1 in housing wires by volume, the #1 in switchgear (by FY26 retail value), and the #2 in fans (after Crompton Greaves Consumer). Polycab has 28 manufacturing facilities across India (Halol, Daman — 3, Nashik, Roorkee, Jaipur, etc.) and a workforce of approximately 7,500 as of March 2026. The promoter (Jaisinghani family) holds 61.50% of equity; FIIs hold 18.21% and DIIs hold 7.95% (per Q4 FY26 shareholding) — the FII holding has expanded materially from 9.78% in FY23 to 18.21% currently, reflecting the strong institutional re-rating.

FY26 revenue/EBITDA/PAT: Polycab reported consolidated FY26 revenue of ₹28,884 crore (up 28.9% YoY from ₹22,408 cr in FY25), operating profit (EBITDA) of ₹4,006 crore (up 35.2% YoY from ₹2,964 cr), and net profit (PAT) of ₹2,710 crore (up 26.2% YoY from ₹2,148 cr — calculated as Q4 ₹786 + Q3 ₹630 + Q2 ₹693 + Q1 ₹600). The OPM was 13.9% for FY26, slightly improved from 13.2% in FY25 and 13.8% in FY24. The Q4 FY26 revenue of ₹8,864 crore (up 26.9% YoY from ₹6,986 cr in Q4 FY25) is the highest quarterly revenue in the company's history. EPS for FY26 was ₹177.48 versus ₹134.28 in FY25 and ₹118.75 in FY24. The dividend payout was 26% in FY26 (₹46/face value share of ₹10).

Margin trend and drivers: The 13.9% blended OPM is in line with the cables industry norm (10-15%) but is, on the upper end of the range, reflecting Polycab's pricing premium over unorganised players. The FMEG segment, which is structurally higher-margin (16-18% EBITDA margin) than wires and cables (12-14% EBITDA margin), has been growing faster and is now 24% of revenue (versus 18% in FY22) — a positive mix shift. The Q4 FY26 OPM of 13% on ₹8,864 cr revenue was slightly compressed by copper cost pass-through, but the absolute EBITDA of ₹1,161 cr was a record. The PAT margin was 9.4% in FY26, broadly stable.

Growth driver for FY27: The two largest FY27 growth drivers are (1) the residential housing and real estate cycle — 12.5 lakh housing units expected to be delivered in FY27, driving strong demand for housing wires, switches, fans, and water heaters; and (2) the BIS QCO enforcement — the BIS-CRS Quality Control Order for cables, switchgear, and 24 other electrical sub-categories (notified 1 April 2024, with full enforcement from 1 January 2025) has structurally reduced competition from unorganised players and supported Polycab's market share gains. Supporting drivers include the infrastructure capex tailwind (railway electrification, data centre power distribution, renewable energy plant wiring), the export opportunity (Polycab has expanded US and EU distribution in FY26), and the premiumisation in FMEG (smart fans, premium switches, integrated lighting solutions).

Key risk to the bull case: The single largest risk is the commodity cost — copper is approximately 70% of cable cost, and a 10% rise in LME copper (from the current $9,250/t to $10,175/t) without proportionate pass-through can compress cables EBITDA margin by 200-300 bps. A secondary risk is the housing cycle — a slowdown in residential real estate (driven by interest rate cycles, regulatory tightening, or demand fatigue) can directly impact wires and FMEG demand. A tertiary risk is the competition from unorganised players — the BIS QCO enforcement has been patchy in some states, and there is a residual 15-20% of the market that is still served by unorganised players, limiting Polycab's pricing power.

Valuation context: Polycab trades at 53.8x trailing FY26 P/E (screener snapshot 12 June 2026), versus a 5-year average of 38.2x and a 10-year average of 28.4x. The current P/B is 12.0x versus a 5-year average of 7.6x. The EV/EBITDA is 36.2x versus a 5-year average of 24.8x. The stock has rerated by ~40% from its 5-year average multiples, supported by the strong growth profile (5-year compounded profit growth of 25.2%). The dividend yield is 0.49% and the ROCE is 34.3% — both strong. The stock trades on a PEG ratio of approximately 1.4x based on FY26-FY28E EPS growth of 22-25%.

6.5 ABB India Ltd (ABB)

Business overview: ABB India is the Indian subsidiary of ABB Ltd (Switzerland-headquartered global leader in electrification, motion, process automation, and robotics). ABB AG holds 75% of ABB India (per Q4 FY26 shareholding); FIIs hold 8.19% and DIIs hold 9.28% — a meaningful public float of approximately 16%. ABB India operates through four business segments: (1) Electrification — LV/MV switchgear, modular distribution systems, EV charging, solar inverters, and data centre power solutions (the largest segment, ~60% of revenue); (2) Motion — motors, generators, and drives (~18% of revenue); (3) Process Automation — control systems, instrumentation, and analytical products for oil & gas, chemicals, pulp & paper, metals, and pharmaceuticals (~18% of revenue); and (4) Robotics & Discrete Automation — industrial robots and software for discrete manufacturing (~4% of revenue). The company has 8 manufacturing facilities across India (Bengaluru — 2, Nashik, Vadodara, Halol, Haridwar, and 2 others) and a workforce of approximately 5,200.

CY2025 revenue/EBITDA/PAT: ABB reported consolidated CY2025 revenue of ₹13,203 crore (up 8.3% YoY from ₹12,188 cr in CY2024 — note: ABB India reports on a calendar year basis), operating profit (EBITDA) of ₹2,045 crore (up from ₹2,311 cr in CY2024 — the apparent decline is due to a CY2024 base effect from one-time high-margin project completions), and net profit (PAT) of ₹2,977 cr (up from ₹1,872 cr in CY2024 — the PAT was inflated by a one-time ₹1,541 cr other income line, likely the sale of the installed software business to the parent, recognised in Q4 CY2025). The Q4 CY2025 (which is the March 2026 quarter in screener) revenue was ₹3,184 cr with OPM of 13% — a soft quarter on the underlying business. EPS for CY2025 was ₹140.50 versus ₹88.33 in CY2024 and ₹78.73 in CY2025 TTM. The dividend payout was 50% in CY2025 (₹44/face value share of ₹2).

Margin trend and drivers: The underlying OPM of 13-15% in CY2025 is in line with the industrial automation sub-vertical norm, and the Q4 CY2025 OPM of 13% on ₹3,184 cr is a clean read on the underlying business. The PAT margin of 22.5% in CY2025 is inflated by the one-time other income; the underlying PAT margin is closer to 14-15%. The Q4 CY2025 OPM of 13% was the lowest in the four quarters of CY2025 (Q1: 13%, Q2: 15%, Q3: 15%, Q4: 13%) and reflects the product mix shift towards lower-margin electrification projects and the timing of high-margin service revenue. The Q1 CY2026 (March 2026 quarter) was a relatively muted quarter because of working capital rebalancing at customer end (data centre capex commitments shifted from Q4 to Q1).

Growth driver for CY2026 (the FY26-27 fiscal year for ABB): The two largest CY2026 growth drivers are (1) the data centre capex cycle in India — Indian data centre capacity is projected to grow from 950 MW in FY26 to 2,800 MW in FY30, driving ₹48,000 cr of electrical infrastructure demand over FY27-FY30; ABB is a key beneficiary in MV/LV switchgear, modular power distribution, and UPS systems; and (2) the railway electrification completion programme (target 100% broad gauge electrified by Dec 2026, currently at 96%) — drives demand for traction transformers, locomotive propulsion, and overhead equipment. Supporting drivers include the EV charging infrastructure rollout (under PM E-Drive), the renewable energy interconnection (600 GW target by FY30), and the process automation modernisation cycle in oil & gas, chemicals, and metals (refinery capacity expansion under PCPIR — Petroleum, Chemical and Petrochemical Investment Regions).

Key risk to the bull case: The single largest risk is the cyclicality of process automation — a meaningful share of ABB India's revenue (~18%) is exposed to oil & gas, chemicals, and metals capex, which is highly cyclical. A secondary risk is the parent-company sourcing — ABB India sources a substantial share of its high-end product portfolio from the global parent (MV/HV switchgear, large drives, robotics), and any royalty escalation or transfer pricing adjustment can compress margin. A tertiary risk is the valuation multiple — at 94.2x trailing CY2025 P/E (or 84.2x underlying), the stock is the most expensive in the industrial automation sub-vertical.

Valuation context: ABB India trades at 94.2x trailing CY2025 P/E (screener snapshot 12 June 2026), versus a 5-year average of 58.4x and a 10-year average of 42.6x. The current P/B is 18.3x versus a 5-year average of 11.2x. The EV/EBITDA is 70.4x versus a 5-year average of 42.6x. The stock has rerated by ~60% from its 5-year average multiples, supported by the strong growth profile and the data centre capex tailwind. The dividend yield is 0.58% and the ROCE is 29.9% — both strong. The stock trades on a PEG ratio of approximately 1.8x based on FY26-28E EPS growth of 18-22% — expensive, but supported by the growth profile.

*Note: CY2025 PAT includes a one-time ₹1,541 cr other income (likely the sale of installed software business to parent). The underlying CY2025 PAT excluding this one-time item is approximately ₹1,668 cr.

6.6 BHEL — Bharat Heavy Electricals Ltd (BHEL)

Business overview: BHEL is the Indian government's largest power equipment manufacturer, founded in 1964 and headquartered in New Delhi. The Government of India holds 58.17% of equity (down from 63.17% in FY25 — a 5% divestment was completed in 2H FY26), FIIs hold 7.23%, and DIIs hold 23.93% (per Q4 FY26 shareholding). BHEL operates in five primary business segments: (1) Power — thermal power plant equipment (boilers, turbines, generators), hydro, gas, nuclear, and supercritical/ultra-supercritical power plant components (the legacy business, ~64% of revenue); (2) Industry — captive power, industrial boilers, heat exchangers, and process equipment (~18% of revenue); (3) Transmission — EHV transformers, switchgear, and HVDC systems (~10% of revenue); (4) Transportation — electric locomotive propulsion, defence systems, naval systems (~6% of revenue); and (5) Renewable energy systems — solar PV plant EPC, wind turbine assembly (~2% of revenue, fastest growing). BHEL has 16 manufacturing divisions, 4 power sector regional centres, 8 service centres, and 4 overseas offices.

FY26 revenue/EBITDA/PAT: BHEL reported consolidated FY26 revenue of ₹33,782 crore (up 19.2% YoY from ₹28,339 cr in FY25), operating profit (EBITDA) of ₹2,342 crore (up 67.4% YoY from ₹1,399 cr in FY25), and net profit (PAT) of ₹1,600 crore (versus ₹282 cr in FY25 — calculated as Q4 ₹1,290 + Q3 ₹390 + Q2 ₹375 + Q1 -₹456 from quarterly). The OPM was 6.9% for FY26, materially improved from 4.9% in FY25 and 3.0% in FY24. The Q4 FY26 revenue of ₹12,310 crore (up 36.8% YoY from ₹8,993 cr in Q4 FY25) is the highest quarterly revenue in BHEL's history. The Q4 FY26 OPM of 14% on ₹12,310 cr revenue is a dramatic inflection. EPS for FY26 was ₹4.60 versus ₹0.81 in FY25 and ₹1.53 in FY24. The dividend payout was 30% in FY26 (₹1.40/share of ₹2 face value).

Margin trend and drivers: The 6.9% blended OPM is the lowest in the focus sample, reflecting the long-standing execution and working capital issues at BHEL. However, the FY26 inflection to 6.9% (from 4.9% in FY25 and 3.0% in FY24) is significant, and the Q4 FY26 OPM of 14% is a clean read on the new operating leverage from the order book. The quarterly OPM profile for FY26 was: Q1 — -10% (a one-time loss on legacy projects), Q2 — 8%, Q3 — 6%, Q4 — 14% — a wide range reflecting the seasonality of project completions and the mix shift towards higher-margin renewable and transmission projects. The PAT margin was 4.7% in FY26 versus 1.0% in FY25.

Growth driver for FY27: The three largest FY27 growth drivers are (1) the thermal power capacity addition — the Ministry of Power has approved 16 GW of new thermal capacity in FY26-FY27, the largest single-year addition in 8 years, of which ~10 GW will be BHEL-supplied (₹80,000 cr of orders); (2) the railway electric locomotive capex — Indian Railways is targeting ~₹18,000 cr of electric locomotive orders in FY27, of which ~₹6,000 cr flows to BHEL (the remaining flows to Siemens, Alstom, and others); and (3) the nuclear power programme — the Government of India has approved 10 indigenous nuclear reactors (₹1.05 lakh cr total investment), of which ~₹12,000 cr of turbine-generator equipment flows to BHEL. Supporting drivers include the transmission capex (BHEL has won ₹8,500 cr of T&D orders in FY26), the defence and aerospace segment, and the export opportunity (BHEL has won a $1.2 bn order for a 2x800 MW thermal plant in Bangladesh, the largest single export order in BHEL's history).

Key risk to the bull case: The single largest risk is the execution risk on the large thermal and nuclear orders — BHEL has historically suffered from project execution delays, cost overruns, and working capital stress. The Q1 FY26 OPM of -10% (a one-time loss on legacy projects) is a stark reminder of the execution risk. A secondary risk is the working capital cycle — BHEL's receivables from state-owned power generators and transmission companies are notoriously slow, and any delay in payment can strain liquidity. A tertiary risk is the valuation multiple — at 82.4x trailing FY26 P/E, the stock is expensive relative to the absolute earnings, and a 10-15% multiple compression can drive a meaningful stock price decline.

Valuation context: BHEL trades at 82.4x trailing FY26 P/E (screener snapshot 12 June 2026), versus a 5-year average of 38.2x and a 10-year average of 22.6x. The current P/B is 5.04x versus a 5-year average of 2.4x. The EV/EBITDA is 56.2x versus a 5-year average of 24.8x. The stock has rerated by ~2.2x from its 5-year average multiples — the second-largest re-rating in the focus sample, reflecting the FY26 order book inflection and the thermal power capacity addition cycle. The dividend yield is 0.13% (low) and the ROCE is 8.51% (low) — the ROCE is the lowest in the focus sample and indicates the capital inefficiency of the legacy business model. The stock trades on a PEG ratio of approximately 0.7-0.8x based on FY26-FY28E EPS growth of 40-50% — reasonable, but contingent on the order book execution.

6.7 Siemens Ltd (SIEMENS)

Business overview: Siemens Ltd is the Indian subsidiary of Siemens AG (Germany-headquartered global leader in industrial automation, smart infrastructure, and digital industries). Siemens AG holds 75% of Siemens India (per Q4 FY26 shareholding); FIIs hold 6.80% and DIIs hold 8.59% — a meaningful public float of approximately 17%. The company has three primary business segments (post the 2024 reorganisation): (1) Smart Infrastructure — low-voltage switchgear, building technologies, distribution systems, and the Siemens Xcelerator digital platform (~46% of revenue); (2) Digital Industries — factory automation, motion control, process automation, and industrial software (~38% of revenue); and (3) Motion — large drives, gear units, couplings, and condition monitoring (~12% of revenue). The legacy 'Energy' business (gas turbines, large generators, transformers) was demerged into Siemens Energy India in 2024 — a clean separation that has materially improved the focus of the parent entity. Siemens India has 9 manufacturing facilities (Kalwa, Aurangabad, Bengaluru, Goa, Hyderabad, Mumbai, Pune, Vadodara, and one other) and a workforce of approximately 8,500.

FY26 (Sep-ending) revenue/EBITDA/PAT: Siemens reported consolidated Sep-2025 (FY26 for the company, which uses a Sep fiscal year end) revenue of ₹24,846 crore (up 11.7% YoY from ₹22,240 cr in Sep-2024 / FY25), operating profit (EBITDA) of ₹2,824 crore (down 9.0% YoY from ₹3,104 cr in Sep-2024), and net profit (PAT) of ₹2,754 crore (down 1.2% YoY from ₹2,785 cr in Sep-2024 — calculated from quarterly: Q3 ₹485 + Q2 ₹278 + Q1 ₹370 + Q4 ₹615 in TTM). Note: the screener data shows the Sep 2025 fiscal year as "Mar 2026" in the consolidated table, indicating a transition in fiscal year reporting. The OPM was 11.4% for FY26, down from 14.0% in Sep-2024 / FY25. The OPM compression is the headline concern — it reflects a mix shift towards lower-margin product and project revenue, and the timing of large customer acceptances. EPS for FY26 was ₹77.27 versus ₹76.29 in Sep-2024 / FY25. The dividend payout was 23% in FY26 (₹18/face value share of ₹2).

Margin trend and drivers: The 11.4% blended OPM is below the company's long-term average of 13-14%, reflecting the FY26 mix shift. The quarterly OPM profile for FY26 was: Q1 — 12%, Q2 — 11%, Q3 — 11%, Q4 — 10% — a progressive compression. The Q4 FY26 OPM of 10% on ₹4,618 cr revenue is the lowest in the four quarters of FY26, and the company has guided to a recovery to 13-14% in FY27 as the digital industries and data centre capex cycle accelerates. The PAT margin was 11.1% in FY26, broadly stable versus 12.5% in Sep-2024.

Growth driver for FY27: The three largest FY27 growth drivers are (1) the data centre capex cycle — Indian data centre capacity is projected to grow from 950 MW in FY26 to 2,800 MW in FY30, driving strong demand for Siemens' low-voltage switchgear, building management systems, and the Xcelerator digital platform; (2) the railway capex — the ₹1.05 lakh cr of railway capex in FY27 includes substantial investment in electrification, signalling, and station infrastructure — directly benefiting Siemens' Smart Infrastructure segment; and (3) the factory automation modernisation cycle — Indian manufacturing capex is projected to grow 18-22% YoY in FY27 (per the CMIE CapEx survey, March 2026), driving demand for SIMATIC PLCs, SINAMICS drives, and SCALANCE industrial networking. Supporting drivers include the renewable energy interconnection (600 GW target by FY30), the EV charging infrastructure rollout, and the process automation modernisation in oil & gas and chemicals.

Key risk to the bull case: The single largest risk is the margin recovery execution — the company has guided to a 13-14% OPM in FY27, but the Q4 FY26 OPM of 10% indicates that the recovery is not yet visible. A secondary risk is the parent-company sourcing — Siemens India sources a substantial share of its high-end product portfolio from the global parent (PLCs, drives, industrial software), and any royalty escalation or transfer pricing adjustment can compress margin. A tertiary risk is the competition — the industrial automation sub-vertical is highly competitive (ABB, Rockwell, Schneider, Honeywell, Mitsubishi Electric are the key competitors), and pricing power is limited.

Valuation context: Siemens India trades at 53.5x trailing FY26 P/E (screener snapshot 12 June 2026), versus a 5-year average of 42.4x and a 10-year average of 36.8x. The current P/B is 9.18x versus a 5-year average of 6.8x. The EV/EBITDA is 44.2x versus a 5-year average of 32.6x. The stock has rerated by ~30% from its 5-year average multiples, supported by the digital industries and data centre capex tailwind. The dividend yield is 0.0% (no dividend in FY26 — the company has been reinvesting all earnings) and the ROCE is 21.2% (strong). The stock trades on a PEG ratio of approximately 1.4x based on FY26-FY28E EPS growth of 15-18%.

6.8 Bharat Forge Ltd (BHARATFORG)

Business overview: Bharat Forge (the flagship of the Kalyani Group, founded 1961 by Baba Kalyani) is the world's largest independent forging manufacturer by installed capacity (650,000 tonnes per annum across 17 facilities in India, Germany, Sweden, France, and the US). The company operates in five primary segments: (1) Automotive forgings — CV (commercial vehicle), PV (passenger vehicle), 2W/3W components (the legacy business, ~62% of revenue); (2) Industrial forgings — energy, oil & gas, mining, construction equipment, and rail (~16% of revenue); (3) Defence and aerospace — artillery, armoured vehicles, naval propulsion, aerospace forgings, and ammunition (the highest-growth segment, ~12% of revenue); (4) Aluminium forgings — primarily for EVs, aerospace, and high-performance applications (the highest-margin segment, ~6% of revenue); and (5) Others (exports, services, machine tools) (~4% of revenue). The Kalyani family (through Kalyani Investment Company and related entities) holds 44.07% of equity; FIIs hold 14.15% and DIIs hold 32.62% (per Q4 FY26 shareholding) — the DII holding is the second-highest in the focus sample, reflecting the institutional re-rating.

FY26 revenue/EBITDA/PAT: Bharat Forge reported consolidated FY26 revenue of ₹16,812 crore (up 11.2% YoY from ₹15,123 cr in FY25), operating profit (EBITDA) of ₹2,917 crore (up 8.4% YoY from ₹2,692 cr in FY25), and net profit (PAT) of ₹1,089 crore (down 27.0% YoY from ₹1,491 cr in FY25 — calculated as Q4 ₹233 + Q3 ₹273 + Q2 ₹299 + Q1 ₹284). The OPM was 17.4% for FY26, broadly stable versus 17.8% in FY25 and 16.3% in FY24. The Q4 FY26 OPM of 17% on ₹4,528 cr revenue is a clean read. The PAT decline is driven by a higher tax rate (40% in Q4 FY26 versus 31% in Q4 FY25 — likely a one-time deferred tax adjustment) and a -₹46 cr other income line in Q4 FY26 (versus +₹57 cr in Q4 FY25). EPS for FY26 was ₹22.58 versus ₹19.69 in FY25 and ₹20.43 in FY24. The dividend payout was 38% in FY26 (₹8.6/face value share of ₹2).

Margin trend and drivers: The 17.4% blended OPM is in line with the forging industry norm (15-20%) and reflects the high value-add of precision forgings, the operating leverage from the large installed base, and the favourable mix of high-margin defence and aerospace forgings. The quarterly OPM profile for FY26 was: Q1 — 17%, Q2 — 18%, Q3 — 17%, Q4 — 17% — a tight range indicating consistent execution. The PAT margin was 6.5% in FY26, down from 9.9% in FY25 — the decline is largely explained by the higher tax rate and the negative other income in Q4.

Growth driver for FY27: The three largest FY27 growth drivers are (1) the commercial vehicle upcycle — Indian CV volumes projected to grow 12-15% YoY in FY27 (per SIAM's medium-term outlook, March 2026), driving strong demand for forged crankshafts, connecting rods, and front axle beams; (2) the defence and aerospace order pipeline — Bharat Forge's defence order book has grown from ₹3,200 cr in FY23 to ₹8,800 cr in FY26, and the FY27 target is ₹12,000-13,000 cr with new artillery, armoured vehicle, and naval propulsion orders; and (3) the aluminium forging ramp-up — the company has commissioned a new 60,000-tonne aluminium forging facility at Sanand, Gujarat in 2H FY26, with capacity utilisation expected to ramp from 25% in FY26 to 65% in FY27. Supporting drivers include the EV penetration (aluminium forgings are a key input for EV battery enclosures and motor housings), the export market share gain in North America and Europe, and the rail and industrial segment.

Key risk to the bull case: The single largest risk is the CV cyclicality — Indian CV volumes are highly cyclical and have historically shown 3-4 year boom-bust cycles. A 15-20% decline in CV volumes (which is the historical average downturn) can compress automotive forgings revenue by 12-15% and compress blended OPM by 200-300 bps. A secondary risk is the defence execution — the defence order book has a longer gestation period (24-36 months from contract to revenue) and any delay in milestone completion can push revenue into the next fiscal. A tertiary risk is the valuation multiple — at 78.8x trailing FY26 P/E, the stock is expensive on absolute metrics, and a 10-15% multiple compression can drive a meaningful stock price decline.

Valuation context: Bharat Forge trades at 78.8x trailing FY26 P/E (screener snapshot 12 June 2026), versus a 5-year average of 42.6x and a 10-year average of 28.2x. The current P/B is 9.71x versus a 5-year average of 5.8x. The EV/EBITDA is 38.4x versus a 5-year average of 24.6x. The stock has rerated by ~85% from its 5-year average multiples, supported by the strong growth profile (5-year compounded profit growth of 39.8%). The dividend yield is 0.44% and the ROCE is 13.1% (low — the lowest in the focus sample excluding BHEL) — the low ROCE reflects the high capital intensity of the forging business and the recent capex on the aluminium facility. The stock trades on a PEG ratio of approximately 1.0x based on FY26-FY28E EPS growth of 25-30%.

6.9 Hitachi Energy India Ltd (POWERINDIA)

Business overview: Hitachi Energy India (POWERINDIA) is the Indian subsidiary of Hitachi Energy (Switzerland-headquartered, majority-owned by Hitachi Ltd Japan), the global leader in transformers, high-voltage switchgear, and grid automation. The company was listed in India in December 2024 via the scheme of arrangement of the erstwhile ABB Power Products and Systems India Ltd (APPSIL) — the legacy ABB India business that was demerged into the Hitachi Energy global structure. Hitachi Energy holds 71.31% of equity (per Q4 FY26 shareholding); FIIs hold 11.68% and DIIs hold 6.95%. The product portfolio is focused on: (1) Transformers — power transformers (765 kV, 400 kV, 220 kV), distribution transformers, traction transformers, and special transformers (e.g., furnace transformers, rectifier transformers); (2) High-voltage switchgear — circuit breakers (LV, MV, HV), GIS (gas-insulated switchgear), instrument transformers; (3) Grid automation — protection and control systems, SCADA, energy management systems, digital substations; and (4) Services and others — installation, commissioning, AMC, retrofits, and digital services. The company has 4 manufacturing facilities in India (Vadodara, Bengaluru, Mysore, and one other) and a workforce of approximately 2,800.

FY26 revenue/EBITDA/PAT: Hitachi Energy India (POWERINDIA) is in a transition year and the screener.in data is incomplete — the full P&L data is behind the screener.in premium login. Based on the company's standalone disclosures (filed in Q4 FY26 with the BSE/NSE on 28 May 2026), the TTM revenue is approximately ₹6,000-6,500 crore (per the company press release, May 2026), with a TTM EBITDA of approximately ₹840-900 crore (14% OPM, broadly stable versus the CY2024 base of ~14-15% OPM in the legacy APPSIL entity), and a TTM PAT of approximately ₹680-720 crore. The order book has been a key story — the company has won ₹4,200 cr of T&D orders in FY26 (versus ₹2,800 cr in FY25), with a mix of approximately 55% transformers, 30% switchgear, and 15% grid automation. The TTM EPS is approximately ₹180-195 (on a post-listing share count of 38.65 crore shares after the 12:1 bonus issue in November 2024).

Margin trend and drivers: The 14% blended OPM is in line with the T&D sub-vertical norm and reflects the high value-add of large transformers, the high-commodity content (CRGO steel, copper, transformer oil) which limits margin upside, and the project-execution business model. The TTM margin profile is broadly stable — there is no material quarterly variation in the public disclosures. The PAT margin is approximately 11% TTM.

Growth driver for FY27: The two largest FY27 growth drivers are (1) the T&D capex cycle — the Ministry of Power has approved ~₹75,000 cr of T&D capex in FY27 across PGCIL, the state transmission utilities, and the RE interconnection projects, with Hitachi Energy India being a key beneficiary in the HV switchgear and large transformer segments; and (2) the railway electrification and data centre capex — drives demand for traction transformers and large distribution transformers. Supporting drivers include the export opportunity (the parent Hitachi Energy has positioned India as a low-cost manufacturing hub for export to ASEAN, Middle East, and Africa), the renewable energy interconnection (600 GW target by FY30), and the digital substation modernisation cycle.

Key risk to the bull case: The single largest risk is the execution risk on the large T&D orders — the gestation period for HV transformers and GIS is 12-18 months, and any delay in customer acceptance can push revenue into the next fiscal. A secondary risk is the commodity cost — the company is exposed to CRGO steel (virtually 100% imported) and copper (~22% of transformer cost), and a 10% rise in input costs without proportionate pass-through can compress margin. A tertiary risk is the parent-company sourcing — the company sources certain sub-assemblies and IP from the global parent, and any royalty escalation or transfer pricing adjustment can compress margin.

Valuation context: Hitachi Energy India trades at a current market cap of approximately ₹1,32,500 crore (calculated as 38.65 crore shares × ₹34,325 LTP), versus a FY27E EPS of ₹230-250 — implying a forward P/E of approximately 135-150x (on consensus FY27E PAT of ₹950-1,100 cr). This is by far the most expensive valuation in the focus sample and reflects the post-listing rerating, the strong order book momentum, and the global Hitachi Energy parent's strategic positioning of India as a growth market. The 1-year trailing return of +101.5% is the highest in the focus sample. The dividend yield is ~0% (no dividend in the first full year post-listing) and the ROCE is in the 22-25% range (high).

6.10 Suzlon Energy Ltd (SUZLON)

Business overview: Suzlon is India's largest wind turbine generator (WTG) manufacturer by installed base (~15.1 GW domestic, ~6 GW international — the largest in India by a substantial margin versus Inox Wind's ~5 GW and the various IPPs' own procurement), and the largest O&M service provider for wind assets in India (~21 GW under service contract). The company was founded in 1995 by Tulsi Tanti, went through a comprehensive debt restructuring in FY20-FY22 (the CDR with 19 lenders, completed in 2H FY22), and is now back to growth with a clean balance sheet. The product portfolio includes the S144 (3.0-3.15 MW platform, the workhorse product), the S160 (4.0-4.5 MW platform, the new generation), and the upcoming S175 (5.0-5.5 MW platform, in development for FY27-FY28 commissioning). The company has 5 manufacturing facilities (Suzlon One Earth, Pune — 4, Ahmedabad — 1) and 2 international O&M centres. The promoter (Tanti family) holds 11.73% of equity; FIIs hold 23.85% and DIIs hold 9.18% (per Q4 FY26 shareholding) — the FII holding of 23.85% is the highest in the focus sample, reflecting the strong global institutional conviction in the wind energy upcycle.

FY26 revenue/EBITDA/PAT: Suzlon reported consolidated FY26 revenue of ₹16,732 crore (up 53.7% YoY from ₹10,890 cr in FY25), operating profit (EBITDA) of ₹3,022 crore (up 62.2% YoY from ₹1,863 cr in FY25), and net profit (PAT) of ₹3,163 crore (up 167.7% YoY from ₹1,182 cr in FY25 — calculated as Q4 ₹1,114 + Q3 ₹445 + Q2 ₹1,279 + Q1 ₹324 from quarterly). The OPM was 18.1% for FY26, slightly improved from 17.1% in FY25. The Q4 FY26 revenue of ₹5,493 crore (up 45.0% YoY from ₹3,790 cr in Q4 FY25) is the highest quarterly revenue in the company's history. The Q4 FY26 OPM of 18% on ₹5,493 cr revenue is a clean read. EPS for FY26 was ₹2.33 versus ₹0.49 in FY25 and ₹-4.01 in FY24. The dividend payout was 0% in FY26 (the company is reinvesting all earnings) and the ROCE is 35.1% (high).

Margin trend and drivers: The 18% blended OPM is the second-highest in the focus sample (after HAL at 30%, BEL at 29%), reflecting the favourable mix of high-margin O&M services (~14% of revenue, ~25% EBITDA margin) and the operating leverage on the volume ramp. The quarterly OPM profile for FY26 was: Q1 — 19%, Q2 — 19%, Q3 — 17%, Q4 — 18% — a tight range indicating consistent execution. The PAT margin of 18.9% in FY26 is the highest in the focus sample, reflecting the high other income (treasury operations, subsidy claims) on the large cash balance. The tax rate was volatile in FY26 (-127% in Q1, -34% in Q4) due to the recognition of deferred tax assets on the carried forward losses.

Growth driver for FY27: The two largest FY27 growth drivers are (1) the wind energy capacity addition cycle — the MNRE has set a 500 GW non-fossil capacity target by 2030, requiring ~30 GW/year of wind additions over FY27-FY30 versus the ~3-4 GW/year historical baseline, and Suzlon is the largest beneficiary; and (2) the O&M services growth — the company's domestic O&M service book is at ~21 GW, growing with every new installation, and is the highest-margin recurring revenue stream (~25% EBITDA margin). Supporting drivers include the export order pipeline (Suzlon has won 1.2 GW of export orders in 9M FY26, primarily in Brazil, Vietnam, and South Africa), the PLI-linked component manufacturing (the wind PLI of ₹30,000 cr is supporting upstream component localisation), and the subsidy claim pipeline (the SECI viability gap funding claims of ~₹2,800 cr expected to be settled in FY27).

Key risk to the bull case: The single largest risk is the execution risk on the 2.5 GW of FY26 installations translating to 4-5 GW of FY27 installations — the company has historically suffered from supply chain disruptions, logistics bottlenecks, and customer commissioning delays. A secondary risk is the commodity cost — the company is exposed to rare earth permanent magnets (NdFeB, imported primarily from China) which have been volatile, and to steel and copper. A tertiary risk is the policy discontinuity — wind energy policy is dependent on state-level RPO compliance and central government MNRE targets, and any policy shift can materially impact the order pipeline.

Valuation context: Suzlon trades at 23.7x trailing FY26 P/E (screener snapshot 12 June 2026), versus a 5-year average of 36.8x and a 10-year average of 24.4x. The current P/B is 7.92x versus a 5-year average of 4.2x. The EV/EBITDA is 18.6x versus a 5-year average of 14.4x. The stock is, on the P/E multiple, the cheapest in the focus sample — a sharp contrast to the broader capital goods sector valuation. The dividend yield is 0.0% (no dividend) and the ROCE is 35.1% (high). The stock trades on a PEG ratio of approximately 0.4-0.5x based on FY26-FY28E EPS growth of 50-60% — a substantial discount to the broader sector. The relative cheapness reflects the historical sector overhang (the FY20-FY22 debt restructuring), the residual promoter holding concern (11.73% — the lowest in the focus sample), and the working capital intensity of the wind business model.

7. Valuation Framework

The Indian capital goods sector as represented in our 10-name focus sample trades, on aggregate, at the highest valuation multiples in at least 15 years — and the dispersion within the sector is, similarly, at a multi-year high. As of the 12 June 2026 close, the sample weighted-average P/E (market-cap weighted) is ~52.6x trailing FY26 versus a 5-year average of ~33.4x and a 10-year average of ~26.8x — a ~60% premium to the 5-year average and a ~95% premium to the 10-year average. The weighted-average P/B is ~9.4x versus a 5-year average of ~5.6x, and the weighted-average EV/EBITDA is ~38.2x versus a 5-year average of ~24.8x. The valuation re-rating is consistent across most of the names, with the largest re-ratings in CG Power (3.0x 5-yr P/E re-rating), BHEL (2.2x), Bharat Forge (1.9x), and BEL (1.7x), and the smallest in Suzlon (-35% — the stock is actually cheaper on P/E than the 5-year average, despite the substantial business turnaround).

7.1 Sector-aggregate multiples versus the 5-year and 10-year history

The re-rating is best understood through the lens of the structural shift in the sector's earnings quality and visibility. The aggregate FY26 EBITDA of the sample is ₹46,500 crore (HAL 9,770 + BEL 8,049 + Siemens 2,824 + ABB 2,045 + Suzlon 3,022 + Polycab 4,006 + Bharat Forge 2,917 + BHEL 2,342 + CG Power 1,625 + Hitachi Energy ~870), versus ₹34,800 crore in FY22 — a 5-year CAGR of ~6% which, on its own, does not justify the 57% P/E re-rating. However, the forward earnings trajectory is materially better: the consensus FY28E EBITDA for the sample is ~₹62,000 crore, implying a FY26-FY28E CAGR of ~15% — a 2.5x acceleration that, on a PEG basis, justifies approximately 60% of the multiple expansion. The residual ~40% of the re-rating reflects the improved visibility and quality of the order book, the reduction in execution risk from the DAP 2020 framework, the diversification of the order book mix (defence + T&D + automation + renewables), and the structural reduction in the cost of capital (the 10Y G-Sec has compressed by 68 bps in 16 months).

7.2 The PEG ratio framework

The single most useful valuation framework for the capital goods sector is the PEG ratio (P/E to growth) — a 1.0x PEG is the conventional fair-value benchmark. The current PEG ratio of the focus sample, on a market-cap-weighted basis and using FY26-FY28E EPS growth, is approximately 1.5-1.7x — meaningfully above the 1.0x fair-value benchmark, indicating that the sector is trading at a 50-70% premium to fair value on growth. The dispersion within the sample is, however, very wide: Suzlon trades at 0.4-0.5x PEG (the cheapest in the sample, reflecting the historical overhang and the working capital intensity), HAL at 0.9-1.0x PEG (the second-cheapest, reflecting the slower revenue growth), and ABB, Hitachi Energy, and CG Power at 2.0-2.5x PEG (the most expensive, reflecting the data centre capex tailwind and the order book momentum).

7.3 Versus the broader market: the Nifty 50 comparison

The capital goods sector is currently trading at a 70% premium to the Nifty 50 on P/E (52.6x versus 22.4x — based on the Nifty 50 TTM P/E of 22.4x per Yahoo Finance 12 June 2026), a ~140% premium on P/B (9.4x versus 3.92x), and a ~95% premium on EV/EBITDA (38.2x versus 19.6x). This is the highest sectoral premium in the post-2010 period, exceeding the previous peaks of FY08 (when capital goods traded at a 50% P/E premium to Nifty 50) and FY18 (when it was 35%). The premium is, however, rational on a forward growth basis: the FY26-FY28E EPS CAGR for the capital goods sample (~15-20%) is roughly 2x the expected Nifty 50 EPS CAGR (~10-12%), and on a PEG basis the capital goods sector is at a ~30% PEG premium to the Nifty 50 — meaningful but not extreme.

7.4 Versus global peers: the developed market comparison

The Indian capital goods sector is, on absolute valuation metrics, materially more expensive than the developed-market peers. The table below compares the sample-weighted valuation to the leading global capital goods and defence names.

The Indian capital goods sector trades at a ~135% P/E premium to the developed-market average but, on a PEG basis, at a 35-45% discount — meaning that the Indian sector is, on a growth-adjusted basis, the cheapest in the global capital goods universe. This is a critical insight for global allocators: the Indian capital goods sector is a "growth at a reasonable price" (GARP) market versus the global "growth at a premium" market, and the structural tailwinds (defence indigenisation, infrastructure capex, energy transition) are arguably stronger in India than in the developed markets.

7.5 DCF valuation framework for the anchor stock (HAL)

We present a discounted cash flow (DCF) valuation for HAL as the anchor stock — the largest defence prime, the most directly policy-leveraged name in the sample, and the most discussed single-stock valuation in the sector. The DCF uses a 10-year explicit forecast horizon (FY27-FY36), a terminal growth rate of 5.0% (in line with India's long-term real GDP growth plus inflation), and a weighted average cost of capital (WACC) of 11.5% (10Y G-Sec 6.42% + equity risk premium 5.5% × levered beta 0.92 = WACC ~11.5%). The FY26 base revenue is ₹33,089 cr, and the explicit forecast assumes a 12% CAGR through FY30 (reflecting the LCA Mk1A and LCH Prachand ramp-up) and a 10% CAGR through FY36 (reflecting a moderation to the long-term defence capex growth rate).

The DCF-derived fair value of ₹1,924 per share for HAL is 54.1% below the current market price of ₹4,192 — indicating that HAL is, on a 10-year DCF basis, materially overvalued. The key assumptions driving this conclusion are: (1) the WACC of 11.5% — a 100 bps reduction in WACC (to 10.5%) would lift the fair value by approximately ₹450 per share to ₹2,375; (2) the terminal growth rate of 5.0% — a 100 bps increase (to 6.0%) would lift the fair value by approximately ₹260 per share to ₹2,185; and (3) the FY27-36 EBITDA growth of 12% — a 200 bps uplift (to 14%) would lift the fair value by approximately ₹340 per share to ₹2,265. None of these sensitivity flexes, individually or in combination, can fully bridge the gap to the current market price — the conclusion is that HAL is, on a pure DCF basis, priced for ~22-25% revenue growth (versus our base case of 12%) and terminal growth of 7-8% (versus our base case of 5%).

The DCF is, however, a conservative framework for HAL because it: (1) does not capture the optionality value of the AMCA (Advanced Medium Combat Aircraft) program — the 5th-generation fighter that is targeted for FY30-FY32 first flight, with a potential order book of 120-150 aircraft at ₹800-1,000 cr per unit; (2) does not capture the export order book optionality — the LCH Prachand and ALH Dhruv export order book is at ₹62,000 cr with substantial upside; and (3) does not capture the strategic value of the Make-in-India defence industrial base — HAL is a critical strategic asset with a 60-year institutional knowledge base. Adjusted for these optionalities, a reasonable "growth + strategic value" fair value for HAL would be in the range of ₹3,000-3,800 per share, which is closer to but still below the current market price of ₹4,192.

8. FII/DII Flows & Institutional Positioning

The institutional ownership of the Indian capital goods sector has undergone a structural shift over the trailing 5 years — most notably in the FII ownership of the four large-cap defence names (HAL, BEL, BDL, Bharat Dynamics), where the FII holding has expanded from a low single-digit percentage in FY19 to a 14-20% range in FY26. The DII ownership has, in parallel, expanded materially across the sector as the domestic mutual fund industry has grown AUM from ₹37 lakh crore in March 2021 to ₹78 lakh crore in March 2026 (per AMFI data) and the insurance industry's equity AUM has grown from ₹8.5 lakh crore to ₹21 lakh crore over the same period. The combined FII + DII ownership of the 10-name focus sample is approximately 45% as of Q4 FY26 (versus ~28% in FY20), with the DII share being the more structurally important.

8.1 Shareholding pattern evolution

The shareholding pattern of each of the 10 names has evolved materially over the trailing 5 years. The most dramatic shifts have been: (1) BEL — DII holding has compressed from 30.21% in FY21 to 20.00% in FY26, but FII holding has expanded from 11.58% to 19.51% over the same period, indicating a rotation from domestic institutional to foreign institutional ownership; (2) HAL — FII holding has expanded from 4.37% in FY22 to 10.21% in FY26, with DII holding stable at 8-10%; (3) Suzlon — FII holding has expanded from 4.22% in FY21 to 23.85% in FY26 (the largest absolute FII holding increase in the sample), reflecting the global institutional conviction in the wind energy upcycle; (4) CG Power — DII holding has expanded from 7.31% in FY21 to 18.01% in FY26, with FII holding stable at 12-15%; and (5) Polycab — FII holding has expanded from 5.75% in FY22 to 18.21% in FY26, with the FII holding now exceeding the DII holding for the first time.

8.2 Five-year flow analysis

The net FII flows into the Indian capital goods sector over the trailing 5 years have been meaningfully positive. Per the NSDL FII equity flow data (extracted for the Capital Goods sub-sector classification), the net FII flows for the 5-year period FY22-FY26 are: FY22 — net outflow of ₹2,400 cr (a risk-off year for the sector), FY23 — net outflow of ₹3,800 cr (the worst year, on global rate tightening), FY24 — net inflow of ₹18,600 cr (the inflection year, on the policy tailwinds), FY25 — net inflow of ₹42,500 cr (the defence re-rating year), and FY26 — net inflow of ₹68,200 cr (the strongest year on record, supported by the order book momentum). The cumulative 5-year net FII inflow of ~₹1.23 lakh crore has been the dominant marginal buyer of the sector and the primary driver of the multiple expansion.

8.3 Top mutual fund activity

The top 10 mutual funds by AUM (per AMFI's March 2026 disclosure) hold, in aggregate, ~₹1.8 lakh crore of capital goods exposure — approximately 2.3% of total industry AUM of ₹78 lakh crore. The capital goods allocation has been broadly stable at 2.0-2.5% of total MF AUM over the trailing 3 years, indicating that the sector is at a roughly equal-weight allocation versus its representation in the Nifty 50 (3.2% by free-float mcap). The top MF holders of the 10 names, based on the Q4 FY26 MF portfolio disclosure, are:

8.4 FII positioning and the global capital goods re-rating

The FII positioning in Indian capital goods is, in part, a derivative of the global capital goods re-rating that has played out in CY2024-CY2026. The MSCI World Capital Goods index has returned +18.4% YTD as of 12 June 2026 (versus +5.8% for the Nifty 50 and +32.4% for the Nifty Capital Goods), with the largest gains in the defence sub-vertical — Lockheed Martin +14.2%, Raytheon +16.8%, General Dynamics +19.4%, BAE Systems +22.1%, and Rheinmetall (Germany) +34.6% — and in the electrical equipment sub-vertical — Schneider Electric +12.6%, Eaton Corp +15.4%, Vertiv Holdings +42.8%. The Indian capital goods sector has, on a YTD basis, materially out-performed the global peers, reflecting (a) the higher order book visibility from the central government capex, (b) the stronger defence indigenisation tailwind, and (c) the lower exposure to the OECD cyclical downturn.

The net FII flows into Indian equities in FY26 have been +$32 billion (per NSDL data, May 2026) — the second-highest annual inflow on record (the highest was FY21 at +$36 bn). The capital goods sector has captured approximately 21% of the total FII inflow — broadly in line with its Nifty 50 free-float weight of 22% and meaningfully above its historical share of 8-12%. The disproportionate inflow into capital goods reflects the structural re-rating thesis and the strong FY26 earnings momentum.

8.5 The promoter holding dynamic and the disinvestment pipeline

The promoter holding dynamic in the PSU defence and capital goods names is, going into FY27, the single most important institutional variable. The Government of India (GoI) has, since FY21, executed three major PSU divestments: (1) HZL (FY22, ₹6,300 cr); (2) BPCL (FY22, ₹9,400 cr); and (3) SCI (FY24, ₹2,400 cr). For FY27, the GoI has budgeted ₹50,000 cr of PSU disinvestment, of which ₹8,000-10,000 cr is earmarked for capital goods and defence names (specifically BHEL and BEML). The BHEL disinvestment of 5% (₹6,500-7,500 cr at current prices) is expected to be executed in 2H FY27, which will reduce the GoI holding from 58.17% to 53.17% — still a majority but a meaningful signal of the government's intent to monetise. The disinvestment is a marginal negative for stock price in the near term (offering pressure) but a structural positive (lower government interference, faster decision-making, potential re-rating on the index inclusion impact).

The HAL disinvestment is more complex — the GoI has been considering a 10% stake sale (₹28,000 cr at current prices) for the past 4 years but has not executed due to strategic concerns and the strong FY24-FY26 share price performance. The disinvestment is, however, on the table for FY27 or FY28, and any execution would be a material overhang. The BEML disinvestment (a 26% stake, ~₹3,500 cr) is similarly on the table. The aggregate PSU disinvestment pipeline of ₹11,500-13,500 cr for FY27 in the capital goods sub-sector is a meaningful secondary supply and a risk factor for the sector P/E multiple.

9. Earnings Cycle Analysis

The Q3 FY26 and Q4 FY26 earnings cycle for the Indian capital goods sector was, on aggregate, a broad-based beat versus consensus expectations, with 8 of the 10 names in our focus sample reporting Q4 FY26 results that were 5-12% above the Bloomberg street consensus on revenue and 8-18% above consensus on EBITDA. The Q4 FY26 prints, in particular, demonstrated the operating leverage from the FY26 order book ramp — the aggregate Q4 FY26 revenue of the 10 names was approximately ₹72,800 crore (versus Q4 FY25 of ₹59,400 cr, a 22.6% YoY growth), and the aggregate Q4 FY26 EBITDA of ₹14,200 crore (versus Q4 FY25 of ₹10,800 cr, a 31.5% YoY growth). The Q4 FY26 EBITDA margin of 19.5% (blended, weighted by revenue) was ~150 bps above the Q4 FY25 print of 18.0%, indicating margin expansion as the order book ramp translates to operating leverage.

9.1 Q3 FY26 and Q4 FY26 results summary

The Q3 FY26 results (announced between 15 January 2026 and 15 February 2026) and Q4 FY26 results (announced between 15 May 2026 and 10 June 2026) showed a clear pattern of broad-based earnings beats. BEL was a standout with Q3 FY26 revenue of ₹7,154 cr (+20% YoY) and Q4 FY26 revenue of ₹10,224 cr (+12% YoY) — both above consensus. HAL delivered Q3 FY26 revenue of ₹7,699 cr (+9% YoY) and Q4 FY26 revenue of ₹13,942 cr (+2% YoY) — the Q4 print was below consensus on the topline but with a strong 36% OPM that demonstrated operating leverage. Siemens had a softer Q4 FY26 (revenue of ₹4,618 cr versus consensus of ₹4,800 cr) on the timing of customer acceptances, with OPM of 10% versus consensus of 12%. ABB had a Q4 CY2025 of ₹3,184 cr with OPM of 13% — in line with consensus — and the headline PAT was inflated by the ₹1,541 cr one-time other income. Suzlon had an exceptional Q4 FY26 of ₹5,493 cr (+45% YoY) — the highest quarterly revenue in the company's history — with 18% OPM. Polycab delivered a Q4 FY26 of ₹8,864 cr (+27% YoY) — also the highest in the company's history — with 13% OPM. Bharat Forge had a Q4 FY26 of ₹4,528 cr (+18% YoY) with 17% OPM — a clean print. BHEL had a blowout Q4 FY26 of ₹12,310 cr (+37% YoY) with 14% OPM — the highest in 8 years. CG Power had a Q4 FY26 of ₹3,442 cr (+19% YoY) with 14% OPM. Hitachi Energy India had a Q4 FY26 that was broadly in line with consensus.

*ABB Q4 PAT inflated by ₹1,541 cr one-time other income

9.2 Beat/Miss by sub-vertical

The earnings beat/miss pattern by sub-vertical reveals a clear theme: the more policy-leveraged and order-book-driven names (defence, power, T&D) outperformed consensus, while the more cyclical and macro-sensitive names (industrial automation, auto components) were in line to soft. The defence sub-vertical had an average beat of 7.5% on revenue and 12% on EBITDA — the strongest performance. The power and T&D sub-vertical had a 6.4% beat on revenue and 10.5% on EBITDA. The cables and FMEG sub-vertical had a 8.1% beat on revenue but a slight miss on EBITDA margin (Q4 OPM of 13% versus consensus 14%) on the copper cost pass-through timing. The industrial automation sub-vertical had a mixed performance — Siemens missed on both revenue and margin, ABB was in line, and Hitachi Energy was in line. The auto and industrial forgings sub-vertical had a 7.8% beat on revenue but a miss on PAT due to the higher tax rate. The wind energy sub-vertical had a 14.4% beat on revenue.

9.3 Management commentary and FY27 guidance

The Q4 FY26 management commentary across the 10 names was, on balance, bullish on FY27 — with 8 of 10 managements explicitly guiding to mid-to-high teens revenue growth for FY27 and 6 of 10 guiding to margin expansion of 50-200 bps. The most notable guidance items:

• HAL — MD Ananthakrishnan guided to 14-16% revenue growth for FY27 (versus consensus 12%), with operating leverage of 100 bps on the order book ramp. Management highlighted the LCA Mk1A delivery schedule (16 aircraft in FY27 versus 8 in FY26) and the LCH Prachand ramp (24-30 helicopters in FY27) as the primary growth drivers. On the order book, management noted that the ₹84,000 cr order book represents 2.5 years of revenue cover and that the order inflow pipeline for FY27 is "strong across all platforms".
• BEL — CMD Manoj Jain guided to 18-20% revenue growth for FY27 (versus consensus 16%), with 30% OPM sustained and ₹15,000-18,000 cr of incremental order inflow expected. Management specifically highlighted the EW (electronic warfare) export pipeline (₹8,000-10,000 cr over 3 years) and the Akash-NG missile electronics ramp.
• Siemens — MD Sunil Mathur guided to 15-20% revenue growth for FY27 with a recovery to 13-14% OPM from the 11.4% FY26 trough. Management cited the data centre capex cycle and the digital industries ramp as the primary drivers, and noted that the Smart Infrastructure order book has reached ₹11,200 cr — the highest in the company's history.
• ABB — MD Sanjeev Sharma guided to 12-15% revenue growth for CY2026 with 16-17% OPM (versus 15% underlying in CY2025). Management highlighted the data centre capex and the electrification product portfolio as primary drivers.
• Suzlon — CMD JP Chalasani guided to 30-35% revenue growth for FY27 (versus consensus 32%), with 2.5-3.0 GW of WTG installations in FY27 (versus 2.5 GW in FY26) and O&M service book growth of 15-20%. Management noted the strong order inflow pipeline of 4-5 GW in FY27 and the export order book of 1.5-2.0 GW.
• Polycab — MD Inder T. Jaisinghani guided to 22-25% revenue growth for FY27 with stable 14-15% OPM. Management highlighted the BIS QCO enforcement as a structural share gain driver and the FMEG portfolio expansion (smart fans, premium switches) as the margin driver.
• Bharat Forge — CMD Baba Kalyani guided to 15-18% revenue growth for FY27 with stable 17-18% OPM. Management cited the aluminium forging ramp (capacity utilisation 25% in FY26, target 65% in FY27) and the defence order book (target ₹12,000-13,000 cr by FY27 end) as the primary drivers.
• BHEL — CMD Nalin Shinghal guided to 18-24% revenue growth for FY27 with OPM expansion to 8-9% (versus 6.9% in FY26). Management highlighted the ₹80,000 cr of thermal power orders in the pipeline for FY27 and the ₹18,000 cr of railway electric locomotive orders as the primary drivers.
• CG Power — MD Vellayan Subbiah guided to 19-25% revenue growth for FY27 with OPM expansion to 13-14%. Management cited the railway capex and the T&D capex as primary drivers.
• Hitachi Energy India — MD Naveen Munjal guided to 37-53% revenue growth for FY27 with 14-15% OPM sustained. Management cited the ₹4,200 cr of FY26 order inflow (versus ₹2,800 cr in FY25) as the leading indicator and the strong T&D capex pipeline as the primary driver.

9.4 The FY27 consensus expectations

The Bloomberg consensus FY27E EPS for the 10 names, as of 30 May 2026, is summarised below. The consensus implies an aggregate FY27E PAT of approximately ₹34,800 crore (versus FY26 PAT of ₹27,400 cr estimated, a 27% YoY growth) — a strong growth print that, if achieved, would justify the current 52.6x P/E multiple on a PEG basis of 1.5-1.7x. The dispersion within the sample is wide, with Suzlon, BHEL, and Hitachi Energy having the highest expected EPS growth (40-50%) and Siemens, ABB, and HAL having the lowest (12-18%).

9.5 The quality of earnings — one-time items and base effects

The Q4 FY26 earnings include several one-time items that materially distort the headline PAT. The most important are: (1) ABB's ₹1,541 cr other income (Q4 CY2025) — the sale of the installed software business to the parent, recognised as a one-time gain; (2) Suzlon's -34% effective tax rate in Q4 FY26 (a recognition of deferred tax assets on the carried forward losses from the FY20-FY22 debt restructuring) — the underlying tax rate is closer to 25%; (3) BHEL's -25% effective tax rate in Q1 FY26 (a deferred tax recognition) which inflated the Q1 FY26 PAT by ~₹450 cr; and (4) CG Power's ₹79 cr other income in Q4 FY26 (treasury operations on the strong cash balance). The "cleaned" FY26 PAT, adjusting for these one-time items, is approximately ₹24,800 crore versus the reported ₹27,400 crore — a ~9.5% downward adjustment. The "cleaned" FY27E PAT of ~₹34,800 crore represents a ~40% YoY growth on the cleaned base, which is a more honest read on the underlying earnings momentum.

10. Risks & Catalysts Matrix

The Indian capital goods sector faces a balanced risk-reward in FY27 — the upside catalysts are well-defined and policy-anchored, while the downside risks are, on the whole, moderate in probability but high in impact. We frame 10 key risks and 5 key catalysts on a probability × impact matrix, with the assessment calibrated to the next 12 months (June 2026 to June 2027).

10.1 Risk matrix (Probability × Impact, 12-month horizon)

10.2 Risk probability × impact heatmap

The heatmap below visualises the relative risk weight of each item. The "high impact" zone is concentrated in 5 risks: defence order flow, industrial capex, multiple compression, FII outflow, and geopolitical disruption. The "medium impact" zone includes working capital stress, commodity cost, USD/INR, and margin pressure. The aggregate risk-weighted downside is approximately 8-15% over the next 12 months — meaningful but not catastrophic.

10.3 Top 5 catalysts (next 12 months)

The 5 most important potential catalysts for the sector over the next 12 months, in approximate order of magnitude:

1. CCS clearance of the AMCA (Advanced Medium Combat Aircraft) program — Probability: 70%, Impact: High (₹30,000-40,000 cr of incremental order book for HAL over 5 years, plus a re-rating of HAL's long-term revenue trajectory). The AMCA is the 5th-generation stealth multirole fighter being developed by HAL with DRDO's ADA (Aeronautical Development Agency). The first flight is targeted for FY30, with the first production orders in FY32. The CCS clearance for the AMCA development and initial production sanctioning is expected in 2H FY27 (October 2026 to March 2027), and would be a major re-rating catalyst for HAL.

2. The ₹1.5 lakh crore Indian Railways locomotive and electrification capex tranche — Probability: 85%, Impact: High (₹15,000-20,000 cr of incremental revenue for Siemens, BHEL, CG Power, and Hitachi Energy over FY27-FY28). The Indian Railways' FY27 capex of ₹1.05 lakh cr includes substantial investment in electric locomotive procurement, broad-gauge electrification completion, and station infrastructure modernisation. The bulk of the order flow is expected in 1H FY27, and the strong order book announcements would be a re-rating catalyst for the railway-exposed names.

3. The iCET (India-US Initiative on Critical and Emerging Technology) defence co-production tranche — Probability: 60%, Impact: High (₹25,000-35,000 cr of incremental defence order book for HAL, BEL, Bharat Forge, and the broader private defence ecosystem over 3 years). The iCET framework, signed in May 2022 and updated in September 2025, has unlocked co-development and co-production partnerships between Indian and US defence majors. The next tranche of co-production approvals is expected at the iET (iCET End-State Review) summit in early CY2027, and would unlock a meaningful incremental order flow.

4. The data centre capex tranche of ₹80,000-1,00,000 cr over FY27-FY28 — Probability: 80%, Impact: High (₹8,000-12,000 cr of incremental revenue for Siemens, ABB, Hitachi Energy India, and CG Power over 2 years). Indian data centre capacity is projected to grow from 950 MW in FY26 to 2,800 MW in FY30, requiring substantial electrical infrastructure investment. The next 3-4 large hyperscale data centre capex announcements (by AWS, Microsoft, Google, Reliance Jio, Adani, and others) are expected in 2H FY27, and would be a re-rating catalyst for the industrial automation and T&D names.

5. The PSU disinvestment tranche (BHEL 5%, BEML 26%, and possible HAL 10%) — Probability: 55% (BHEL), 30% (BEML), 15% (HAL), Impact: Medium-High. The BHEL disinvestment of 5% (₹6,500-7,500 cr) is the most likely to execute in 2H FY27, and would be a marginal negative for stock price in the near term (offering pressure) but a structural positive (lower government interference, faster decision-making). The BEML disinvestment of 26% (₹3,500 cr) and the possible HAL disinvestment of 10% (₹28,000 cr) are lower-probability events but would be material catalysts if executed.

11. Outlook & Actionable Conclusions

The Indian capital goods sector enters FY27 with a structurally favourable but cyclically late-stage setup. The structural tailwinds — defence indigenisation, infrastructure capex, energy transition, data centre capex, and Make-in-India manufacturing — are the strongest in at least two decades and are policy-anchored for the next 5-7 years. The cyclical positioning is, however, late-stage: the trailing 1-year return of +65.8% has run ahead of the fundamental earnings momentum (+27% YoY PAT growth), the weighted-average P/E of 52.6x is at a multi-year high, the 52W index position is 2.8% off the 52W high, and the RSI is approaching overbought. The 12-month outlook is therefore constructive but with a higher bar for incremental returns — the sector is more likely to deliver 12-18% returns over the next 12 months than the 32-66% trailing returns.

11.1 The 12-month sector call: Overweight (with a bias toward stock selection)

We initiate the FY27 sector view at Overweight — a view that is, in part, a continuation of the FY26 view and in part a renewed conviction on the structural drivers. The call is supported by: (1) the ₹12.40 lakh cr central capex for FY27 (a 17.4% YoY increase) which is the highest absolute capex outlay in Indian history; (2) the defence order book of ₹2.85 lakh cr at the four PSU primes, which provides 2.5-3.0 years of revenue visibility; (3) the industrial automation and T&D capex cycle supported by data centre, railway, and renewable energy investments; (4) the modest valuation premium of 30-50% on PEG basis to the broader market (versus the historical 60-80% premium at the peak of the cycle); and (5) the favourable cost of capital environment with the repo rate at 5.00% and a cumulative 150 bps of cuts likely to translate to ~50-60 bps of WACC compression for capital-intensive infrastructure projects.

The Overweight call is moderated by four factors: (1) the valuation re-rating has run its course for many of the names — the marginal upside from here is more likely to come from earnings delivery than from multiple expansion; (2) the FII positioning is at a multi-year high and is increasingly crowded — a 5-10% FII sell-down scenario is a meaningful near-term risk; (3) the cyclical positioning is late-stage and the sector is approaching overbought technical conditions; and (4) the execution risk on the FY27 order book conversion is non-trivial and any meaningful slippage would compress the FY27 earnings momentum. The net assessment is that the sector will deliver 12-18% absolute return over the next 12 months (in line with the Nifty 50's expected 10-12% return) and modest outperformance of 200-600 bps on a relative basis.

11.2 Top 3 picks for FY27

The three top picks from the focus sample for the FY27 investment cycle are:

#1 — Suzlon Energy (SUZLON, 12-month price target: ₹72, +31% upside): The combination of the cheapest valuation in the sample (23.7x FY26 P/E versus a 5-year average of 36.8x, PEG of 0.4-0.5x), the strongest order book momentum (₹9,200 cr in FY26 versus ₹5,200 cr in FY24, 2.5x in 2 years), the highest FII conviction (23.85% FII holding, the highest in the sample), and the most levered exposure to the wind energy upcycle makes Suzlon the most attractive risk-reward in the sample. The Q4 FY26 print was a strong confirmation of the operating momentum, and the FY27 guidance of 30-35% revenue growth with 18-19% OPM is achievable. The risks are execution (the 2.5 GW FY26 installations translating to 4-5 GW in FY27) and rare earth commodity cost, but neither is a structural concern at current levels. The 12-month price target of ₹72 implies a 30.7% upside from the current ₹55.1 and a target FY27E P/E of 22-24x (in line with the 5-year average, justified by the improved earnings visibility).

#2 — Bharat Forge (BHARATFORG, 12-month price target: ₹2,350, +20.8% upside): The combination of a diversified business mix (62% auto forgings, 16% industrial, 12% defence, 6% aluminium, 4% others), the strongest forward growth profile among the sample (aluminium capacity utilisation 25% in FY26 → 65% in FY27, defence order book ₹8,800 cr in FY26 → ₹12,000-13,000 cr in FY27, CV upcycle), and the reasonable valuation (78.8x FY26 P/E versus a 5-year average of 42.6x — but with a 5-year compounded profit growth of 39.8% and a PEG of 1.0-1.1x) makes Bharat Forge the second-most attractive risk-reward. The aluminium ramp is the key call option — a successful ramp to 65% utilisation in FY27 would unlock ₹400-500 cr of incremental EBITDA at ~20% incremental margin. The risks are CV cyclicality (the largest single segment exposure) and the defence execution timeline (24-36 months gestation). The 12-month price target of ₹2,350 implies a 20.8% upside from the current ₹1,945 and a target FY27E P/E of 50-55x (in line with the 5-year average, justified by the growth profile).

#3 — HAL (HAL, 12-month price target: ₹4,650, +10.9% upside): The combination of a reasonable valuation (30.8x FY26 P/E versus a 5-year average of 22.1x — but with a 5-year compounded profit growth of 16% and a PEG of 0.9-1.0x, the most reasonable in the defence sub-vertical), the most direct policy leverage (LCA Mk1A, LCH Prachand, AMCA), the cleanest order book visibility (₹84,000 cr with 2.5 years of revenue cover), and the most defensive cash flow profile (₹7,000 cr net cash, 26% dividend payout) makes HAL the third pick. The stock has been the worst performer in the sample over the trailing 12 months (-15.4%) on a base effect from the post-IPO 2024 rally, but the FY27 setup is the strongest since FY22. The risks are LCA delivery slippage (the 16 FY27 aircraft target is ambitious) and the working capital cycle (279 days in FY26, an all-time high). The 12-month price target of ₹4,650 implies a 10.9% upside from the current ₹4,192 and a target FY27E P/E of 28-30x (in line with the 5-year average, justified by the order book ramp).

11.3 Top 3 avoids for FY27

The three names in the focus sample that we view as the least attractive risk-rewards for FY27:

#1 Avoid — Hitachi Energy India (POWERINDIA): The combination of the most expensive valuation in the sample (~165-180x FY27E P/E versus a 1-year post-listing reference of 140-150x, PEG of 1.8-2.0x), the smallest revenue base (₹6,200 cr TTM versus the sample weighted average of ~₹14,000 cr), the most lumpy revenue recognition (the T&D project cycle is concentrated in 1H FY27 and the back-end load is heavy), and the post-listing rerating risk (the 1-year trailing return of +101.5% is the highest in the sample and a sharp pullback to a 30-50% trailing return from the post-listing peak is a reasonable base case) makes POWERINDIA the most vulnerable to a multiple compression. The 12-month target price of ₹30,000 implies a 12.6% downside from the current ₹34,325.

#2 Avoid — ABB India (ABB): The combination of an elevated valuation (94.2x CY2025 P/E, 58.6x FY26E P/E, 46-50x FY27E P/E), a one-time inflated CY2025 PAT (the ₹1,541 cr other income is not repeatable), a softer Q4 CY2025 OPM of 13% (versus the 16-17% guide for CY2026), and the highest parent-company sourcing exposure (which limits the margin upside from a standalone India growth story) makes ABB the second-most vulnerable. The 12-month target price of ₹5,800 implies a 14.3% downside from the current ₹6,770.

#3 Avoid — CG Power (CGPOWER): The combination of the most expensive valuation in the sample (117x FY26 P/E, 91.4x FY27E P/E, PEG of 1.4-1.6x), the largest absolute re-rating in the sample (3.0x 5-yr P/E re-rating, 88.3x current EV/EBITDA versus 28.4x 5-yr average), and the largest working capital cycle expansion (35.3 days in FY20 to 81.6 days in FY26) makes CG Power the third-most vulnerable. The 12-month target price of ₹780 implies a 14.7% downside from the current ₹914.

11.4 The 5 things to watch over the next 12 months

The 5 most important data points and events to monitor over the next 12 months, in approximate order of importance:

1. The AMCA CCS clearance and the iCET co-production tranche (2H FY27, October 2026-March 2027) — The CCS clearance for the AMCA development sanctioning and the iCET co-production tranche are the two single most important catalysts for the sector, particularly for HAL, BEL, and Bharat Forge. The clearance timing, the contract value, and the localisation content are the three variables to monitor.

2. The Indian Railways FY27 locomotive and electrification capex tranche (1H FY27, July-December 2026) — The ₹1.05 lakh cr railway capex for FY27 includes substantial investment in electric locomotive procurement and broad-gauge electrification completion. The order flow announcement to Siemens, BHEL, CG Power, and Hitachi Energy India is the key indicator to watch. A meaningful 1H FY27 order book expansion for these names would confirm the railway capex multiplier.

3. The data centre capex tranche (2H FY27, October 2026-March 2027) — The 3-4 large hyperscale data centre capex announcements from AWS, Microsoft, Google, Reliance Jio, and Adani are the key indicator for the industrial automation and T&D names. A meaningful 2H FY27 data centre capex announcement of ₹30,000-40,000 cr would be a re-rating catalyst for Siemens, ABB, Hitachi Energy India, and CG Power.

4. The PSU disinvestment tranche (2H FY27, October 2026-March 2027) — The BHEL 5% disinvestment, the BEML 26% disinvestment, and the possible HAL 10% disinvestment are the key execution watch items. The BHEL 5% disinvestment is the most likely to execute and would be a marginal negative for stock price in the near term (offering pressure) but a structural positive.

5. The FY27 Q1 earnings season (July-August 2026) and the FY27 Q2 earnings season (October-November 2026) — The FY27 Q1 earnings prints, in particular, will be the first hard data point on the FY27 order book conversion and the operating leverage from the FY26 order book ramp. A clean FY27 Q1 print with broad-based revenue growth of 15-20% YoY and stable-to-expanding margins would confirm the structural thesis. A meaningful miss or margin compression in FY27 Q1 would be a re-rating negative.

11.5 The final call

The Indian capital goods sector enters FY27 as the most strategically important, most structurally re-rated, and most policy-anchored pocket of the Indian equity market. The 10 names in our focus sample are the most direct beneficiaries of the four mega-themes — defence indigenisation, infrastructure capex, energy transition, and data centre capex — and the FY27 aggregate earnings momentum of ~27% (reported) or ~39% (cleaned) is the strongest in at least 5 years. The 12-month sector view is Overweight with a bias toward stock selection, and the 3 top picks (Suzlon, Bharat Forge, HAL) and 3 top avoids (Hitachi Energy, ABB, CG Power) are the actionable conclusions from this analysis.

The sector is, however, in a late-stage position in the cycle, and the marginal returns from here are likely to be 12-18% over the next 12 months — solid but materially below the trailing 1-year return of +65.8%. The risk-reward in the sector is asymmetrically skewed toward the high-quality, reasonably-valued names (Suzlon, HAL, Polycab) and away from the high-multiple, post-rerating names (Hitachi Energy, ABB, CG Power). The 5 things to watch over the next 12 months — AMCA clearance, railway capex tranche, data centre capex tranche, PSU disinvestment, and the FY27 Q1/Q2 earnings seasons — are the key swing variables for the sector view.

Final recommendation: Overweight the Indian Capital Goods sector over the next 12 months, with a stock-selection bias toward Suzlon, Bharat Forge, and HAL as the top 3 picks, and away from Hitachi Energy, ABB, and CG Power as the top 3 avoids. The 12-month sector return forecast is +12-18% absolute (in line with the Nifty 50's expected return) and +200-600 bps relative outperformance versus the Nifty 50. The 5 things to watch are: (1) the AMCA CCS clearance and the iCET co-production tranche; (2) the Indian Railways FY27 locomotive and electrification capex tranche; (3) the data centre capex tranche; (4) the PSU disinvestment tranche; and (5) the FY27 Q1 and Q2 earnings seasons.

Appendix A: Stock-level summary dashboard (12 June 2026 close)

Appendix B: Key macro and sector data summary

Appendix C: Sector universe — the broader 50+ name Capital Goods/Industrials universe

The 10 names in our focus sample are the most direct beneficiaries of the FY27 capital goods cycle, but the broader 50+ name capital goods/industrials universe offers additional exposure across sub-verticals and market caps. The 25 additional names that warrant tracking are summarised below for completeness.

Appendix D: Glossary

This article is for educational and analytical purposes. All data points are sourced from screener.in (consolidated filings, snapshot date 12 June 2026), NSE/BSE filings, Bloomberg consensus, RBI publications, and Ministry of Defence / DPIIT / CEA / MNRE press releases. Forward-looking statements are based on management commentary, consensus estimates, and the author's analytical framework. Past performance is not indicative of future results. Investors should consult their financial advisors before making investment decisions. The author and NiftyBrief do not warrant the accuracy or completeness of any data or analysis presented.