Nomura has urged investors to adopt a selective, bottom-up approach to the capital goods sector going into 2026, noting that while long-term fundamentals remain strong, the near-term backdrop calls for greater stock-level differentiation. The brokerage expects public sector capex to remain stable, providing continuity of demand, while a pick-up in private capex is likely in the second half of CY26 as utilisation levels improve and balance sheets continue to strengthen across industrial companies.
According to Nomura, cost optimisation efforts and operating leverage will be essential in offsetting potential gross margin pressures arising from commodity-linked volatility and competitive intensity. Against this mixed backdrop, the brokerage prefers companies with strong execution capabilities, diversified end-market exposure and balance sheet strength. Its top picks include L&T, CG Power, HAL, GE Vernova and ABB — businesses Nomura believes are best placed to benefit from rising electrification, defence modernisation and global supply-chain shifts.
The brokerage added that while demand indicators remain healthy, valuation dispersion across the sector warrants a more discerning approach, particularly as earnings visibility varies significantly between pure-play EPC names and multi-segment engineering firms.
Disclaimer: The views and recommendations above are those of Nomura. Business Upturn does not endorse them. Please consult a financial advisor before making investment decisions.
