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We expect 2QFY27 performance for industrials sector to witness rising costs amid continued West Asia crisis. During the quarter, we expect 1) execution momentum to remain strong for players on account of robust existing order books, 2) build-up in order inflows particularly from transmission, data center and private capex-related projects, and 3) some benefits of price increases taken by players to pass on RM costs. As commodity prices continue to move upward, we expect companies to take another round of calibrated price hikes in line with demand. We do see risks to full-year margin estimates for companies having a larger portion of fixed-price contracts. For 2QFY27, we estimate our coverage companies to report revenue/EBITDA/PAT growth of ~9.5%/10.0%/9.8% YoY, with a broadly flat EBITDA margin of 13.0%. We believe that certain stocks have come down to attractive valuations, while the overall long-term thesis is intact. We would prefer companies that are benefiting from improved ordering across growing themes and have pricing power or variable pricing contracts in the current scenario of rising RM prices. We reiterate our positive stance on LT/Cummins/GE Vernova T&D in the large-cap space, and Kirloskar Oil Engines/Kalpataru Projects International in the mid-cap and small-cap segments. In the defense sector, Bharat Electronics remains our top pick.

Ordering momentum accelerates in 2QFY27

Ordering activity has picked up in 2QFY27 across power T&D, hydrocarbon, metals, B&F, data centers and infrastructure. Among our coverage companies, LT announced inflows of ~INR1t in 2QFY27, which included (i) three ultra-mega orders (>INR150b) from the Middle East in its hydrocarbon business, and (ii) two mega orders (INR100b150b) from NVIDIA (to set up an AI factory) and NTPC (for equipment related to a thermal power plant). KEC announced inflows worth ~INR36b, and KPIL secured orders worth more than ~INR95b across domestic and export markets, primarily from power T&D, B&F, O&G, and residential sectors. Defense sector ordering was weak; however, it is expected to pick up as approved AoNs worth INR13t over FY25- YTDFY27 reach the finalization stage.

Transmission sector prospects gain further visibility

The transmission space, after a temporary slowdown, saw a revival in tender approvals. In 2QFY27, eight tenders were finalized and awarded to PGCIL and AESL. These also included the Barmer II-South Kalamb HVDC project won by PGCIL, for which GVTD was subsequently declared as L1 for the HVDC LCC terminal package in Sep’26. On 30th Sep’26, the Union Cabinet approved the Green Energy Corridor Phase-III scheme with a capital outlay of INR1.86t. This comprises INR1.36t for the development of intra-state transmission systems (InSTS) through the TBCB mode to enable evacuation of up to 135 GW of renewable energy, while the balance INR500b will be utilized for 50 GWh of battery energy storage systems (BESS). This further reaffirms the medium-term transmission pipeline.

Defense segment sees strong pipeline and improving execution

Defense segment has seen DAC approvals of INR1.62t in FY27 YTD and has a healthy pipeline ahead. Total approvals of INR13t over FY25-YTDFY27 have helped expand TAM for domestic players. The government is opening missile production to Indian private players (reducing single-company dependency), bolstered by approving DRDO to transfer technologies for all conventional missile systems to Indian industry for domestic production, implying higher private participation and larger TAM for non-PSU players. The deadline for submitting RFP for AMCA project has been shifted to 30th Oct’26. On aircraft space, HAL’s MD has committed to delivering 10 Tejas Mk-1A by Mar’27, supported by 10 F404-IN20 engines received till date, 12 more committed by GE Aerospace by Dec’26, and 27 completed airframes. We believe the key monitorables going ahead are: QRSAM (CCS clearance awaited), Akash-NG, P75I (CCS approval awaited), landing platform docks, next-gen corvettes and frigates, Mk1A deliveries, and AMCA announcements, especially on higher private participation.

Commodity prices remain elevated

Commodity prices remained high YoY, with aluminum/copper/zinc/primary rebar still up nearly 23%/45%/38%/28% YoY. Elevated brent prices and continued closure of SoH for exports can pose logistic constraints for some of the players. Average quarterly prices of copper and zinc have moved up 7%/11% QoQ and aluminum/primary rebar have corrected 10%/6% QoQ. Companies had already implemented price hikes in 1QFY27 to offset higher commodity costs, which should partly cushion the impact on 2QFY27 margins. Most companies had indicated that further price hikes could be implemented depending on the demand environment. The benefits of these pricing actions are expected to flow through to margin with a quarter lag.

Export ordering improving

Globally, the focus of spending has shifted toward energy security, supply chain security, defense and manpower resource mobilization. Power transmission, data centre and defense are emerging as key focus areas. During 2QFY27, export ordering picked up for LT, KPIL and KECI, which reported multiple large orders from the Middle East region in power T&D, hydrocarbon and O&G. In the defense sector, in order to promote exports, the Ministry of Defence simplified the defense export SOP and open general export license (OGEL) framework to reduce the procedural requirements for exporters and increase OGEL validity from two years to three years.

Sector View: Prefer companies where macro drivers are intact

We believe that certain stocks have come down to attractive valuations, while overall long-term thesis is intact. We would prefer companies that are benefiting from improved ordering across growing themes such as transmission and distribution, data center and defense and have pricing power or variable pricing contracts in the current scenario of rising RM prices. Private sector ordering has been on an uptrend for the past few quarters, and we would keep a continuous watch on government capex spending.

Preferred picks

We believe that certain stocks have come down to attractive valuations while overall long-term thesis is intact. We would prefer companies that are benefiting from improved ordering across growing themes and have pricing power or variable pricing contracts in the current scenario of rising RM prices. We reiterate our positive stance on LT/Cummins India/GE Vernova T&D in the large-cap space, and Kirloskar Oil Engines/Kalpataru Projects International in the mid-cap and small-cap segments. In the defense sector, Bharat Electronics remains our top pick.

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