Synopsis : CLSA sees India’s capex cycle moving higher, with L&T, HAL, IRB, NCC and BEL among the stocks offering significant potential upside. India’s capital expenditure cycle is gathering pace, with government spending driving fresh project awards while early signs of private-sector investment and a growing pipeline of overseas projects are adding to the order flow for engineering and construction companies. CLSA sees this as a broadening cycle, with several stocks standing out across infrastructure, defence and capital goods.
In its September 4 report, India Capex Insight #71, CLSA said the order backlog of the top 36 engineering and construction companies rose 20% year-on-year in the first quarter of FY27 to $248 billion, while profit after tax increased 19%. Four of the five key components of central government spending were firing, public-sector companies continued to place orders and Indian contractors were increasingly winning projects overseas.
“This validates our thesis of Capex-driven economic growth in India and the success of Make in India for the world,” CLSA said.
The brokerage described the broader theme as “India’s Capex cycle into a higher orbit under Modi 3.0” and identified L&T, Hindustan Aeronautics, NCC, Bharat Electronics and IRB Infrastructure Developers Ltd. among its preferred stocks.
BHEL: Strong order book, but CLSA remains cautious
Bharat Heavy Electricals (BHEL) is the only stock in the list carrying a negative return expectation. CLSA has an ‘Underperform’ rating and a target price of Rs 306, implying 29.3% downside.
BHEL’s order backlog increased 27% year-on-year in the first quarter of FY27. However, CLSA noted that the company’s enterprise value-to-order-book multiple was around 0.47 times, compared with its historical average of 0.40 times. Despite the improvement in orders, the brokerage therefore considers BHEL its least preferred stock.
HAL: Defence orders strengthen the backlog
Hindustan Aeronautics (HAL) has an ‘Outperform’ rating from CLSA and a target price of Rs 5,481, implying 14.7% upside.
HAL’s order backlog grew 32% year-on-year to Rs 2.5 lakh crore in the first quarter of FY27. CLSA said HAL led backlog growth among the defence companies covered in the report. The Ministry of Defence also signed contracts worth Rs 62,400 crore for 97 LCA Mk1A aircraft, adding to the company’s order visibility.
L&T: Private-sector orders add to record backlog
Larsen & Toubro (L&T) carries an ‘Outperform’ rating and a target price of Rs 4,842, implying 22.1% upside.
L&T’s order backlog increased 27% year-on-year in the first quarter of FY27 to a record $82 billion. Domestic orders accounted for 45% of the total backlog, while the private sector’s share of the domestic order book increased to 40% from 27% a year earlier.
The company also won two TenneT offshore wind projects worth €5 billion, including €3 billion in the first quarter of FY27.
CLSA said, “In our view, L&T is still the best stock among India industrials on FY26-28 EPS growth versus FY27PE”.
BEL: Defence award pipeline provides fresh order visibility
Bharat Electronics Ltd. (BEL) is rated ‘Outperform’ by CLSA, with a target price of Rs 522, implying 27.8% upside.
BEL’s defence award pipeline increased 131% year-on-year in FY26. The pipeline covers avionics, mountain radars, electronic warfare suites and air-defence radars. CLSA also pointed to Defence Acquisition Council procurement proposals worth $9 billion in December 2025 and another $9 billion in October 2025.
NCC: Large backlog supports growth visibility
Nagarjuna Construction Company (NCC) has an ‘Outperform’ rating and a target price of Rs 216, implying 46.5% upside.
NCC’s consolidated order backlog increased 16% year-on-year to Rs 81,200 crore in the first quarter of FY27. The company won three orders worth Rs 1,840 crore in May 2026 and has guided for FY27 order inflows of Rs 22,000-25,000 crore.
NCC has also guided for revenue growth of 8-10% and an earnings before interest, taxes, depreciation and amortisation margin of 8.5-9% in FY27.
J.Kumar Infraprojects: Infrastructure spending remains the key trigger
J.Kumar Infraprojects has an ‘Outperform’ rating from CLSA and a target price of Rs 765, implying 57% upside.
The company had an order backlog of Rs 15,074 crore at the end of the first quarter of FY27. J.Kumar features among CLSA’s higher-conviction infrastructure calls in its latest capex assessment.
IRB Infrastructure: CLSA’s highest-upside infrastructure call
IRB Infrastructure has an ‘Outperform’ rating and a target price of Rs 34.50, implying 74.9% upside, the highest potential return among the stocks covered in CLSA’s capex report.
IRB’s order backlog stood at Rs 21,373 crore in the first quarter of FY27, up 2% year-on-year. The stock is also among CLSA’s preferred names within the broader capex theme.
Government spending meets private capex and overseas orders
CLSA said domestic execution by the engineering and construction companies it tracks increased 13% year-on-year in the first quarter of FY27. The sector’s book-to-bill ratio stood at 3.7 times, providing revenue visibility through FY28.
Public-sector capital expenditure rose 20.5% year-on-year in the first quarter of FY27. CLSA expects the fiscal deficit to remain below 4.5% of gross domestic product in FY27. NTPC’s capital expenditure is expected at $31 billion over FY26-FY28, while Power Grid’s capital expenditure is expected to increase 1.7 times between FY25 and FY28.
Private-sector spending is also becoming more visible. At L&T, the private sector accounted for 40% of the domestic order book in the first quarter of FY27, compared with 27% a year earlier.
Overseas projects are providing another source of growth, particularly in Europe, where Indian engineering and construction companies are securing large orders.
CLSA also pointed to strong order momentum in solar equipment. The combined order backlog of the solar companies covered by the brokerage increased 38% year-on-year to Rs 87,400 crore in the first quarter of FY27. Premier Energies, Saatvik and Waaree Energies recorded backlog growth of 74%, 59% and 31%, respectively.
Revenue for the group increased 53% year-on-year, while earnings before interest, taxes, depreciation and amortisation rose 46%. TP Solar recorded 113% growth in earnings before interest, taxes, depreciation and amortisation and 286% growth in profit after tax.
However, CLSA noted a difference between integrated cell producers and pure-play module manufacturers. Cell producers have performed better, while module companies have faced logistics challenges and uncertainty around domestic content regulations.
Conclusion
Overall, CLSA’s latest assessment points to a stronger capex cycle supported by government spending, improving private-sector activity and overseas project wins. L&T, HAL, NCC, BEL and IRB are among the brokerage’s preferred names, while BHEL remains its least preferred stock.
For investors, the broader theme is clear: India’s capex cycle is creating opportunities across infrastructure, defence, industrials and renewable energy. However, the upside figures mentioned above are based on CLSA’s estimates and should not be treated as guaranteed returns.
Disclaimer: The information provided in this article is for informational and educational purposes only and should not be construed as investment advice. Stock market investments are subject to market risks, and past performance or brokerage estimates do not guarantee future returns. Readers should conduct their own research and consult a qualified financial adviser before making any investment decisions.
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