Capital Goods – Jul-Sep’26 Earnings Preview – T&D outperformance continues; EPC execution lags

We expect our capital goods coverage universe to report a healthy performance in Q2FY27, driven by: (1) strong execution momentum across T&D-led product companies, supported by healthy order books and sustained domestic demand; (2) relatively slower execution and lower revenue recognition by T&D-focused EPC players amid supply-chain disruptions stemming from the Middle East conflict; (3) improved execution of sizeable order backlogs in defence companies, supported by a healthy order pipeline following recent DAC AoN approvals; (4) healthy performance across industrial product and machinery companies, with the benefits of price hikes undertaken to offset higher raw-material costs expected to reflect progressively in margins; (5) improved performance across consumable companies; and (6) continued softness in export-oriented businesses amid ongoing supply-chain disruptions. Overall, we expect revenue/EBITDA to grow by 12.2%/12.0% YoY (17.6%/19.4% YoY ex-L&T) in Q2FY27, led by healthy execution in T&D-led product companies, industrial product and machinery and defense companies, partly offset by weaker execution in EPC segments amid supply chain disruptions. However, we continue to remain constructive on segments witnessing sustained investments, particularly transmission, data centers and defense, and prefer companies with meaningful exposure to these themes. Our top picks are Bharat Electronics, GE Vernova T&D India and Cummins India.