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Exactly a year ago, we wrote ‘Andra tutto bene’ (everything is going to be alright!) in which we analysed the likely changes to consumption, industry structures, etc. We revisit the thoughts, look beyond the noise, and present potential changes in the operating environment and likely beneficiaries – Va tutto bene (everything’s fine!). A root-cause-analysis of every trend indicates that it’s is a consumer / customer behaviour change.

‘Andra tutto bene #19’ is here - link Top long-term trends in engineering and capital goods sector: 1) Boost to adoption of automation and digitalisation solutions; 2) investment towards more mechanisation, drones, etc. by EPC companies; 3) Atmanirbhar focus and a pro-investment Budget to crank up capex growth; 4) uptick in demand for innovative home and office automation products; and 5) sustained move towards emission control norms and ecofriendly solutions.

Beneficiaries:

L&T, Siemens, Honeywell Automation Potentially negatively impacted companies:

BHEL See our previous reports in the series – Consumer, Agriculture, Pharma, Real Estate, Telecom, Power, Dairy

* PLI scheme and pro-capex Budget: Focusing on Atmanirbhar, the government has launched a production-linked incentive (PLI) scheme targeted at reducing imports. Union Budget FY22 also highlights the government’s focus towards investments despite higher fiscal deficit. We believe, this will support growth for capital goods and subsequently result in higher private sector capex.

* Shift towards more automation and digitalisation solutions: The impact of Covid will force companies to minimise human contact as much as possible. There will be a renewed vigour towards spending on factory automation by domestic companies and this will usher in new opportunities for companies that provide such solutions. This, we believe, will be beneficial for companies like Siemens India, and Honeywell Automation.

* Investment towards mechanisation of projects: Given the recent stress in project execution due to uncertainty regarding migrant manpower, we believe, companies will invest more in project automation equipment such as drones, large machines with higher mechanisation, etc. Siemens and Cummins will be the indirect beneficiaries.

* Home and office automation solutions to gain prominence: Having gone through a phase of quarantine, companies as well as homes will have propensity to invest more towards automation solutions. This can be as trivial as an Amazon Alexacontrolled home automation to setting up of cloud-based office data suites with encrypted controls for official work. Data centres and cloud-based IoT solutions can witness strong demand traction.

* Thrust towards emission norms: We believe there will be greater thrust towards emission controls and ecofriendly solutions to make the world a better and healthy place.

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