L&T up by 12 percent courtesy capital goods policy

Larson & Toubro  (L&T) has touched an intra day high of 1448 on Thursday leading to 14 percent gain in the stock price on an intra-day basis even as broader markets are trading firm at 26,030, up by 0.50 percent at the time of filing this report. 

Government has announced country's first Capital goods Policy  which aims to treble production in 10 years to Rs. 7.5 lakh crores. The announcement  comes only a day before the Modi Government enters into its third year. The policy also aims at creating new jobs and government reports suggest that the employment in the sector will increase almost 4 times to 30 million. There will be thrust on the Micro Small and Medium Enterprises (MSME) in the sector and continuously the MSME will be promoted. The budgetary allocation will  be increased for the capital goods sector as it is an important element in the 'Make in India' scheme. The newly launched policy targets at increasing the exports from current 27 percent of production to 40 percent of production. The aim is to make India net exporter of Capital Goods.

The capital good policy attempts to address key issues relating to availability of finance, technology, raw materials and productivity. A long term stable and rationalised tax and duty structure will be created that will facilitate creation of a globally competitive capital goods sector in India. The policy will help create a new growth trajectory for the sector in India, as per CII director- general, Chandrajit Banerjee. 

L&T being one of the largest player in the sector can expect to benefit from the newly announced policy. L&T's  fourth quarter earnings are better than expected with profits rising 18.5 percent to Rs 2,454 crore and revenue increasing 18.3 percent to Rs 33,157 crore on a YoY basis.

The stock now trades above its 200 days simple moving average indicating bullishness in the stock. The stock has underperformed over a 1 year period and is down by almost 13 percent.