Shares of major Indian capital goods companies extended their sharp decline for a third consecutive session on Monday, January 12, with losses reaching as high as 6.5%. The sell-off was triggered by reports that the Indian government is considering a significant policy shift that could allow Chinese firms back into the lucrative arena of public sector contracts.
What Triggered the Market Sell-Off?
The sharp downturn in the sector began last Thursday after a Reuters report indicated that India's Finance Ministry is planning to lift a five-year-old restriction on companies from neighbouring countries, including China, bidding for government projects. The potential move could open up access to contracts worth a staggering USD 700 to 750 billion.
The report, citing two unnamed government sources, stated that officials are working to remove the mandatory registration requirement for such bidders. It clarified that the final decision rests with Prime Minister Narendra Modi's office.
Stocks and Sectors Hit Hardest
The market reaction was swift and severe. GE Vernova T&D India led the losses, crashing another 6.4% to hit an intraday low of ₹2,704 per share. It was followed by a host of other prominent players.
Over ten stocks witnessed significant declines between 2% and 4%. The list included Apar Industries, Cummins India, Kirloskar Oil Engines, Bharat Heavy Electricals (BHEL), Hitachi Energy India, Thermax, Inox Wind, Zen Technologies, and Siemens Energy India.
Reflecting the broad-based weakness, the BSE Capital Goods index tanked 2.4% to a day's low of 64,003 points. Although it recovered slightly later, the index was still trading 1.20% lower in the afternoon session.
Brokerage Views on Long-Term Impact
Domestic brokerage Systematix Institutional Equities provided an analysis of the potential sectoral impact. It expects a limited immediate effect on businesses like transformers, switchgear, and grid automation, where companies like GE Vernova, Siemens Energy, and CG Power operate.
Regarding BHEL, which has significant product overlap with Chinese original equipment manufacturers (OEMs), the brokerage noted that its robust order book—providing visibility for over seven years—shifts the immediate focus to execution rather than new competition.
For engineering giant Larsen & Toubro (L&T), Systematix anticipates a limited impact. This is due to L&T's existing experience competing with Chinese players in markets like the Middle East and its substantial exposure to service-led business models.
The current restrictions were instituted in 2020. First, as part of the "Atmanirbhar Bharat" (Self-Reliant India) package, global tenders were disallowed for government procurement up to ₹200 crore. Subsequently, the government invoked Rule 144 of the General Financial Rules, imposing restrictions on bidders from countries sharing a land border with India, citing defence and national security concerns.
