Power Stocks Crash on China Bid Rumors; BHEL Rebounds

INDUSTRIAL-GOODSSERVICES
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AuthorAnanya Iyer|Published at:
Power Stocks Crash on China Bid Rumors; BHEL Rebounds
Overview

Power equipment manufacturers Hitachi Energy India and GE Vernova T&D saw shares plunge up to 11% over two days. This follows reports that the government may ease restrictions on Chinese firms bidding for infrastructure and power contracts, potentially increasing competition and project costs for Indian players. Bharat Heavy Electricals Ltd bucked the trend, recovering losses.

Shares of major power equipment manufacturers sank for a second consecutive day Friday, January 8, as speculation intensified over potential government policy shifts regarding Chinese competition. Hitachi Energy India and GE Vernova T&D saw their stock values plunge as much as 11% over two days.

Policy Shift Speculation

The sell-off is driven by reports indicating the Union Ministry of Finance is considering a rollback of procurement restrictions implemented in 2020. These curbs had previously limited Chinese companies from bidding for government contracts in sensitive sectors like infrastructure, power, and manufacturing, following the Galwan Valley clash. Neither the government nor any company has officially confirmed these reports.

Economic Implications

Prior to 2020, Indian manufacturers heavily relied on China for critical components like heavy castings and rotor forgings. Since the restrictions, sourcing has shifted to Europe, leading to higher costs and project execution delays due to a limited global supply chain. Analysts suggest a rollback could revive competition, reduce costs, and accelerate project timelines, benefiting public and private sector initiatives.

Analyst Views and Sector Impact

Analysts at PL Capital noted that Bharat Heavy Electricals Ltd (BHEL) and Larsen & Toubro (L&T) could face increased competition in the boiler, turbine, and generator (BTG) segment if Chinese firms re-enter the market. Chinese players had a significant historical presence before 2020, driven by competitive pricing. However, the analysts believe actual re-entry might be limited due to the segment's strategic importance. JM Financial suggested the government might exempt certain critical components or input materials, benefiting PSUs like BHEL. They maintain an optimistic outlook on BHEL's performance.

Investment Strategy

Amidst the uncertainty, some analysts anticipate the government might mandate local manufacturing for any participating Chinese firms. Additionally, recent notifications mandating the localization of 16 critical components, including switchgear and transformers, are expected to buffer domestic manufacturers. These measures aim to support the domestic transmission and distribution cycle and curb low-cost dumping.

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