Best Capital Goods Stocks to Invest in Jan, 2026

What are Capital Goods Stocks?

Capital goods stocks represent shares of companies engaged in the production and supply of essential machinery, equipment, and infrastructure used across industries like construction, manufacturing, power, and transportation. Capital goods stocks are vital for economic development as they support industrial expansion and modernisation.

The performance of capital goods stocks is influenced by factors such as government infrastructure spending, private sector investments, interest rates, and global economic trends. While these stocks often follow the broader economic cycle, they tend to experience strong growth during periods of increased industrial activity and policy-driven infrastructure development.

Capital goods stocks had one notable period of growth in 2021-2023, when companies like Larsen & Toubro and Siemens India saw significant stock price appreciation due to rising public and private sector investments in infrastructure and energy projects.

The key drivers for this growth included the Indian government’s ₹111 lakh crore National Infrastructure Pipeline (NIP), rising demand for automation and smart manufacturing, and a strong rebound in industrial production post-pandemic. India’s capital goods sector recorded a 15% YoY growth in FY23, with increased exports and domestic manufacturing expansion further boosting stock performance.

Why You Should Invest in Capital Goods Stocks?

You should invest in Capital Goods Stocks for 4 main reasons. The reasons are Infrastructure Growth, Government Initiatives, Export Potential and Industry Expansion.

• Infrastructure Growth: India’s ongoing infrastructure boom is fueling demand for capital goods such as industrial machinery, construction equipment, and electrical systems. The Indian capital goods industry was valued at ₹5.6 lakh crore in 2023 and is projected to grow at a CAGR of 10-11% over the next five years. 
• Government Initiatives: The Indian government has launched various initiatives, including the Production-Linked Incentive (PLI) scheme, Make in India, and Atmanirbhar Bharat, to boost domestic manufacturing. Budget allocations for capital expenditure increased by 33% in FY2023 to ₹10 lakh crore, benefiting major players in the sector. These initiatives are driving domestic production and reducing reliance on imports.
• Export Potential: India is becoming a global manufacturing hub for heavy machinery and electrical equipment, with exports witnessing steady growth. In FY2023, capital goods exports increased by 15% YoY, reaching ₹3.2 lakh crore. With multinational companies adopting the China+1 strategy, firms like ABB India and Schneider Electric are gaining traction in international markets, driving long-term growth.
• Industry Expansion: The capital goods industry is expected to reach ₹12 lakh crore by 2030, driven by industrial automation, renewable energy projects, and rapid urbanisation. 

With strong infrastructure growth, supportive government policies, increasing exports, and industry expansion, capital goods stocks present a compelling investment opportunity. Investors looking to capitalise on India’s industrial and infrastructure growth should closely watch leading capital goods companies shaping the country’s future.

What is the Future of Capital Goods Stocks?

The future of Indian capital goods stocks looks highly promising, driven by rising infrastructure investments, government policies, and increasing private sector participation. In the Union Budget of 2025, the government allocated ₹2.5 lakh crore for infrastructure development, including sectors like power, railways, and manufacturing, significantly boosting demand for capital goods.

The Production-Linked Incentive (PLI) scheme for manufacturing saw a 35% increase in funding, encouraging domestic production of heavy machinery, electrical equipment, and automation solutions. 

Market trends further highlight this strong outlook. Following the budget announcement, L&T’s stock surged by ₹120 (4.5%), reflecting investor confidence in the sector’s growth potential. The Indian capital goods industry, valued at ₹12.8 trillion in 2023, is projected to grow at a CAGR of 10-11%, reaching ₹22 trillion by 2030.

With increasing demand for automation, green energy solutions, and large-scale infrastructure projects, capital goods stocks present a compelling long-term investment opportunity, positioning the sector as a key driver of India’s economic expansion.

What Factors Affect Capital Goods Stock Prices?

Capital goods stocks are affected by 4 main reasons. The reasons are Raw Material Costs, Infrastructure Spending, Government Policies and Global Economic Conditions.

• Raw Material Costs: The cost of key raw materials like steel, copper, and aluminium significantly affects the profitability of capital goods companies. In 2021, rising steel prices led to a 10% decline in the stock price of Bharat Heavy Electricals Ltd (BHEL) as higher input costs squeezed profit margins. 
• Infrastructure Spending: Increased investments in infrastructure and industrial projects boost the demand for capital goods such as machinery and construction equipment. In FY23, Larsen & Toubro (L&T) saw a 15% stock price rise due to a surge in government-led infrastructure projects, including railways, roads, and smart cities. 
• Government Policies: Policy initiatives like the Production Linked Incentive (PLI) scheme and “Make in India” drive growth in the capital goods sector. In 2023, ABB India’s stock surged by 22% as government incentives for manufacturing automation and green energy solutions fueled demand for industrial equipment. Similarly, delays in policy implementation or unfavourable regulations can restrict growth.
• Global Economic Conditions: The capital goods sector is sensitive to global economic trends, as companies rely on both domestic and export markets. During the 2020 global slowdown, Siemens India saw a 9% decline in stock value due to reduced industrial orders. As global supply chains recovered in 2022, its stock rebounded by 18%, driven by increased industrial automation demand.

With India’s focus on manufacturing expansion, clean energy, and infrastructure development, capital goods stocks remain a strong long-term bet. Companies like Thermax and Cummins India have delivered over 30% returns, benefiting from rising industrial demand and supportive government policies.

What are the Advantages of Investing in Capital Goods Stocks?

Investing in Capital Goods stocks is advantageous for 3 main reasons. The reasons are Infrastructure Development, Government Incentives and Technological Advancements.

• Infrastructure Development: The capital goods sector plays a crucial role in industries like construction, power, and manufacturing, ensuring consistent demand. As India ramps up infrastructure spending, companies producing heavy machinery, electrical equipment, and industrial tools benefit from steady growth. Larsen & Toubro (L&T) reported a 21% YoY revenue growth in Q3 FY24, driven by increased order inflows from large infrastructure projects and urban development initiatives.
• Government Incentives: Policies like Make in India and the Production-Linked Incentive (PLI) scheme have boosted domestic manufacturing, reducing import reliance and fostering self-sufficiency. The Indian government allocated ₹2.4 lakh crore for infrastructure development in Budget 2024, driving demand for capital goods. Bharat Heavy Electricals Ltd. (BHEL) saw a 30% increase in new orders in FY23, benefiting from government-backed energy and industrial projects.
• Technological Advancements: Automation, digitalisation, and smart manufacturing have enhanced efficiency in the capital goods industry, making Indian manufacturers more competitive. Companies investing in Industry 4.0 technologies gain an edge in production and operational efficiency. ABB India expanded its industrial automation segment, leading to a 25% increase in profit in Q4 FY24, driven by demand for robotics and energy-efficient solutions.

With India’s capital goods sector projected to reach ₹8.5 lakh crore by 2025, strong policy support and rising industrialisation make it an attractive investment opportunity. Companies like Siemens India and Thermax are well-positioned for sustained growth in this evolving landscape.

What are the Risks of Investing in Capital Goods Stocks?

Investing in capital Goods stocks is risky for 3 main reasons. The reasons are Economic Cycles, Price Fluctuations and Policy Changes.

• Economic Cycles: The capital goods sector is highly cyclical, as demand depends on infrastructure projects, industrial expansion, and government spending. During economic downturns, capital investment slows, impacting company revenues. In FY20, India’s GDP growth slowed to 4%, leading to a decline in infrastructure investments and a 15% drop in order inflows for Major players in this sector. Economic recoveries drive growth, but cyclical downturns pose a major risk to stock performance.
• Price Fluctuations: Capital goods manufacturers rely on steel, copper, and other raw materials, which see frequent price fluctuations. Rising input costs squeeze profit margins if companies cannot pass on the cost to customers. In FY22, steel prices surged by over 50%, impacting the margins of heavy equipment manufacturers like BHEL and Thermax. 
• Policy Changes: Government policies on infrastructure spending, taxation, and industrial regulations significantly impact the capital goods sector. Favourable policies can drive growth, while sudden regulatory changes can disrupt operations. In FY23, the Indian government’s push for domestic manufacturing under the Production-Linked Incentive (PLI) scheme boosted investments in sectors like defence and electronics, benefiting companies like Bharat Electronics. Delays in policy execution or sudden cuts in infrastructure budgets can negatively impact the sector.

Despite these risks, India’s capital goods sector is poised for long-term growth. The government’s ₹10 lakh crore infrastructure investment push in the Union Budget 2024 and rising private sector CapEx indicate strong demand. Companies with efficient cost structures and strong order books, like L&T and Siemens India, are well-positioned to benefit from this growth trend.

When Capital Goods Stock Prices Go Up?

Capital Goods stock prices go up mainly due to 3 reasons. The reasons are Infrastructure Expansion, Rising Export Demand and Government Incentives.

• Infrastructure Expansion: The demand for capital goods rises as industries and infrastructure projects expand. India’s infrastructure push, with a planned capital expenditure of ₹11.1 lakh crore in FY24, has significantly benefited companies in the sector. Larsen & Toubro (L&T) saw a 15% YoY revenue growth in Q3 FY24 due to strong order inflows from infrastructure and energy projects, boosting its stock price.
• Rising Export Demand: India’s capital goods sector has seen a surge in exports, especially in engineering goods, machinery, and electrical equipment, as global supply chains diversify. Engineering goods exports grew by 10% in FY23, reaching ₹9.6 lakh crore. Bharat Heavy Electricals Limited (BHEL) gained 14% in six months, driven by strong international orders for power equipment.
• Government Incentives: Government initiatives like the Production-Linked Incentive (PLI) scheme and increased infrastructure spending have boosted the sector. The PLI scheme for manufacturing is expected to bring ₹1.97 lakh crore in investments over five years. Siemens India saw a 17% stock surge in Q4 FY24, leveraging government incentives to expand its automation and electrification businesses.

With strong industrial demand, growing exports, and robust policy support, India’s capital goods sector offers long-term investment potential. The sector’s growth momentum is evident, as ABB India reported a 22% YoY profit increase in FY24, highlighting the strength of capital goods stocks in India’s economic expansion.

When Capital Goods Stock Prices Go Down?

Capital Goods stock prices go down mainly due to 3 reasons. The reasons are Raw Material Costs, Government Regulations and Global Demand Fluctuations.

• Raw Material Costs: The capital goods sector depends heavily on raw materials like steel, copper, and aluminium. A surge in commodity prices increases production costs, squeezing profit margins and affecting stock valuations. In 2022, rising steel prices led to a 10% drop in stock value for companies like Bharat Heavy Electricals Ltd. (BHEL), as higher input costs reduced profitability. 
• Government Regulations: Stringent government policies on infrastructure spending, taxation, and environmental compliance can impact capital goods companies. In 2023, stricter emission norms in India led to increased costs for industrial equipment manufacturers, affecting companies like Larsen & Toubro (L&T), which saw a temporary slowdown in new project approvals.
• Global Demand Fluctuations: Since many Indian capital goods companies export machinery and equipment globally, their stock performance is sensitive to international demand. In 2022, a slowdown in European infrastructure spending caused a decline in export orders, leading to a 12% drop in the stock price of Thermax Ltd., a key player in industrial solutions. Economic slowdowns in major markets like the U.S. and China can lead to lower capital expenditure, affecting order books and stock valuations.

Despite these risks, India’s capital goods sector remains a strong long-term bet, fueled by infrastructure development and manufacturing expansion. The government’s push for domestic production under the “Make in India” initiative helped the sector grow at a CAGR of 8% from 2020 to 2023, driving companies like Siemens India to gain over 90% in stock value in three years.