BHEL stock price fell 15% in just two sessions! Should investors buy this dip?

Shares of Bharat Heavy Electricals Ltd (BHEL) fell as much as 6% to an intraday low of Rs 258.30 on January 12 as investors reassess reports that India may ease restrictions on Chinese companies bidding for government contracts. The development has raised concerns that it could increase competition and potentially put pressure on prices and margins at state-owned power equipment manufacturers.

The recent decline saw the stock fall nearly 15% in just two sessions, resuming its downward trend after closing higher in the previous session.

What should investors do?

BHEL shares attempted a partial recovery on Friday after a sharp decline on Thursday, but ended last week down about 9%. According to Anand James of Geojit Investments, the decline appears to have occurred during the day, after which an internal bar pattern formed, supporting the possibility of an uptrend for the week ahead. But he cautioned that the stock broke the 50-day simple moving average for the first time since mid-September and closed below it last week. As a result, he advised to wait for a downtrend above Rs 280 for confirmation before turning decisively bullish.What’s wrong with the stock?

The selling followed media reports that India plans to lift curbs on Chinese companies bidding for government contracts. These restrictions were introduced in 2020 following the Atmanirbhar Bharat package and subsequent amendments to general financial rules following India-China border tensions.

As part of these measures, bidders from countries that share land borders with India were required to obtain required political and security clearances, effectively restricting imports from China in sensitive sectors including power and energy.

What do the experts say?

International brokerage Jefferies said last week it was cautious about the possibility of restrictions being eased, calling it a “potential negative development” for some industry players.

Companies such as BHEL, Afcons and L&T are expected to be most affected, he said, adding that details on whether and how the move will be implemented are still awaited. The brokerage said the impact on national defense would be minimal and transmission equipment could be relatively insulated for national security considerations.

Jefferies emphasized that thermal power equipment and railroads are mentioned in news reports, but said the nuance of policy changes will be key.

Domestic brokerage JM Financial took a contrary view, saying that removing restrictions, especially at the component level, could actually benefit public sector companies like BHEL rather than harm them.

“Removal of restrictions at component level (e.g. CRGO steel) will benefit PSUs like BHEL,” the brokerage said. It added that given developers’ past experience with Chinese equipment and strong domestic demand in China, broader easing would have “little impact.”

JM Financial noted that before the restrictions, Indian heavy electrical equipment manufacturers imported large quantities of castings, forgings and pipes from China. After the regulations, they were forced to source from Europe, and their limited global supplier base increased costs and delayed execution.

“We are optimistic about the continued opening opportunities and BHEL’s performance (execution, margins),” said JM Financial, maintaining its ‘buy’ rating with a target price of Rs 363. EBITDA margins are expected to increase from 4.4% in FY25 to at least 10.7% in FY28, while EPS is expected to increase from 1.5 to 12.1 over the same period.

(Disclaimer: Recommendations, suggestions, views and opinions provided by experts are their own. They do not represent the views of The Economic Times.)