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Result commentaries of nearly 30 companies in industrials, defense, and railways segments continue to indicate long-term growth opportunities across T&D, renewables, data centres, and defense. Ordering trend remained mixed, with visible improvement seen across data center and private sector ordering, and it has now started reviving in the Middle East geography too. Margin performance was weak for product companies on higher RM prices and price hikes coming into effect with a lag. Commodity prices remain a key monitorable and, hence, price hikes taken by companies play an important role in maintaining or improving margins. Sector valuations have come off a bit but still remain high. We continue to prefer companies with strong earnings CAGR that can support higher valuations. We prefer Cummins, GE Vernova T&D, and Siemens Energy in the large cap space and KPIL in the mid cap space. In defense, Bharat Electronics remains our preferred pick. We continue to like Dixon in the EMS space

1QFY27: Execution beat and margin miss lead to in-line profitability

Execution across our coverage universe grew 11% YoY in 1QFY27, above our estimate of 5% YoY growth, mainly due to better-than-expected execution in LT, BHE, GVTD, Hitachi Energy, ABB, BDL, TRIV, and Atlanta. While overall execution saw a beat versus estimates, lower-than-expected margins led to in-line PAT performance. Among EPC players, overall revenue increased 6% YoY. West Asiarelated disruptions and project timing caused some moderation in select overseas projects. Among product companies, there was a beat in execution across most companies, while margins were impacted by timing lag between RM price increase and pass through to the end users. Defence PSUs saw healthy execution in 1QFY27, while private defence players reported a YoY decline. We expect this to pick up over the full year, given the back-ended nature of defence execution.

Data center, transmission, and defense pipeline remains strong

Ordering momentum remained mixed during the quarter, with transmission and defence sector ordering remaining relatively weak. For product companies, the absence of large-sized orders was offset by a sharp pick up in base ordering during the quarter, mainly driven by data center and private sector. In addition, EPC players witnessed healthy traction across domestic and international markets, and ordering from the Middle East has also started ramping up well. Data centers remain the strongest near-term demand driver, with ABB, SIEM, KKC, CG Power, TMX, and TRIV among the companies seeing healthy data center-related enquiry or execution, while TD Power is also targeting gas-generator opportunities linked to data-center demand in US markets. Transmission ordering remained subdued, though the TBCB pipeline has started improving from Jun-Jul’26 onwards, which should start converting into orders from 2Q onwards. Defence ordering is also expected to pick up, with significant number of approvals coming through and project finalizations expected 2HFY27 onwards

Exports face near-term headwinds due to West Asia conflict

Export performance was impacted in 1QFY27, with the Middle East emerging as the principal drag due to geopolitical disruption, slower project execution, and elevated logistics costs. For EPC companies such as LT, KPIL, and KEC, the issue has been more visible through delayed execution and slower revenue booking, while product companies saw a limited direct impact given their relatively lower exposure to the region. The decline in Middle East demand has been largely offset by stronger demand in Europe, US, and APAC regions, which continue to see healthy traction across industrial, power T&D, and data-center-related applications. There are also early signs of improving enquiries and order momentum from the Middle East, though project execution remains constrained and freight rates stay elevated.

Key future monitorables

Key future monitorables include:

1) resolution of the West Asia crisis, which can ease out commodity and logistic cost inflation

2) improvement in inflows and finalization of large tenders in T&D, data center, and defense

3) trend in memory prices for electronic manufacturing companies

4) movement in commodity prices

5) price hike announcements from companies.

Recommendation

We maintain our positive thesis on transmission, data center, and defense-led capex beneficiaries. Strong inflows seen for the companies so far will support execution growth over next two years. Commodity prices remain a key monitorable and, hence, price hikes taken by companies play an important role in maintaining or improving margins. Sector valuations have come off a bit, and we continue to prefer companies with a higher earnings CAGR. Our top picks in the sector are L&T, Cummins, and GE Vernova T&D in the large cap space and KPIL in the mid cap space. In defense, Bharat Electronics remains our preferred pick. We continue to like Dixon in the EMS space.

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