Should you bet on the capital goods sector? Renu Baid answers

economictimes.indiatimes.com:

«What happens during an up cycle is growth surprises in terms of the momentum and as a result, the kind of margin upside and operating leverage which comes in, that is really not built in by analysts and investors there,» says Renu Baid, IIFL Institutional Equities.Let us first start with your understanding of the numbers which have come out so far. We have heard from big IT companies, TCS, Wipro, Tech Mahindra, do you think there is reason to get excited about what you have heard from these managements? I think IT companies, probably investors had weighed down on these stocks.

So, probably things may not be as bad in the US or the developed world the way markets were anticipating. But well, for capital goods, I think the broad market outlook and the outlook on the earnings front is definitely positive.Talk about the core sector which you represent, the capital goods space. Yes, capital goods, consumer electricals and electronics.So, let us understand capital goods. This is a sector where massive re-rating has happened. PE multiples have expanded. Everybody is excited about what is happening to the capex cycle and as a result of this kind of positioning, these stocks are expensive. So, do you think we are in for a disappointment this time around and it will be hard for companies to beat and meet expectations?Not really because if you see, we had a similar kind of situation last quarter when we were heading towards the earning season and many investors perceived that names like ABB, Siemens, which were relatively expensive, are now getting in the same expensive zone and there would be little room for surprises.