L&T breaches psychological Rs 1,000 mark. Here's why

L&T has breached the psychological Rs 1,000 mark, a level last seen in May 2009.

At the time of announcing its second quarter results, the company had said that they will be reducing the order book guidance from 15 percent to 5 percent due to deteriorating conditions in the market. Now, as per a Bank of America Merill Lynch report, L&T’s CMD (chairman and managing director) AM Naik thinks its risky to even achieve the revised guidance of 5 percent.

[caption id=“attachment_239204” align=“alignleft” width=“380” caption=“AM Naik, Chairman and managing director at L&T”] [/caption]

When the biggest capital goods company in the country says it is unlikely to see an increase of 5 percent in its order inflow, it means that there is hardly any asset creation in the country. In fact the report mentions Naik as saying that he doesn’t see any improvement in the inflow even in the next year .

A sharp fall in the IIP numbers of capital goods, which fell by 26 percent in November, highlights the woes of the sector. Business confidence in India is below 2009 levels, further highlighting the risk aversion of corporates.

Disgusted with the lack of activity, L&T is now focusing on orders from overseas market. The company thinks there might be a 50-60 percent chance that inflows will improve from international markets, while there is a 25-30 percent chance that inflows will be better from India.

On the proposed 14 percent import duty on power equipment from China, L&T says that Chinese manufacturers have a 30 percent price advantage due to its managed currency and a direct subsidy of 10-12 percent. However, domestic manufacturers have to pay around 11-12 percent higher taxes leading to a gap of nearly 55 percent between the prices of Chinese and Indian goods, which is further killing the sector.