Why is Larsen & Toubro Ltd. falling/rising?

Recent Price Movement and Market Context

L&T’s stock has demonstrated strong momentum in the short term, gaining 6.53% over the past week compared to the Sensex’s 2.30% rise. Despite a slight decline of 3.01% over the last month, the stock has outperformed the broader market indices over longer periods, delivering a 22.83% return in the past year against the Sensex’s 8.49%. Over three and five years, the stock’s returns have been even more impressive, at 86.34% and 164.11% respectively, significantly outpacing the benchmark.

On the day in question, the stock opened with a gap up of 3.36% and touched an intraday high of ₹4,119.95, marking a 5.05% increase. It remains close to its 52-week high, just 3.89% shy of ₹4,194.70, signalling strong investor interest and positive sentiment. Although it slightly underperformed the Capital Goods sector’s gain of 3.76% on the day, L&T’s two-day consecutive gains have accumulated to a 5.89% rise, underscoring sustained buying pressure.

Fundamental Strengths Supporting the Rise

The company’s solid fundamentals underpin the recent price appreciation. L&T boasts a high Return on Capital Employed (ROCE) of 15.16%, reflecting efficient management and effective utilisation of capital. Its net sales have grown at a healthy annual rate of 16.00%, indicating consistent business expansion. The half-yearly financials ending December 2025 further reinforce this strength, with the highest ROCE recorded at 14.84%, a debtors turnover ratio of 5.05 times, and a conservative debt-equity ratio of 1.32 times.

Valuation metrics also favour the stock. With a ROCE of 17.5 and an enterprise value to capital employed ratio of 3.6, L&T is trading at a discount relative to its peers’ historical averages. The company’s profits have risen by 21% over the past year, closely aligned with the 22.83% return generated by the stock, resulting in a PEG ratio of 1.6, which suggests a fair valuation given its growth prospects.

Investor Participation and Liquidity

Investor interest in L&T has been rising, as evidenced by the delivery volume of 18.28 lakh shares on 02 Feb, which is 11.33% higher than the five-day average. This increased participation suggests growing confidence among market participants. Additionally, the stock’s liquidity remains robust, with a trade size capacity of approximately ₹23.49 crore based on 2% of the five-day average traded value, making it accessible for institutional and retail investors alike.

Institutional holdings stand at a substantial 63.3%, indicating that well-informed investors with greater analytical resources continue to back the company. This institutional support often provides stability and confidence in the stock’s valuation and future prospects.

Market Position and Sector Influence

L&T is the largest company in the Capital Goods sector by market capitalisation, valued at ₹5,39,515 crore, and accounts for 42.97% of the sector’s total market cap. Its annual sales of ₹2,77,504.43 crore represent over 60% of the industry’s revenue, underscoring its dominant position. This leadership role within the sector contributes to its resilience and ability to capitalise on growth opportunities.

Conclusion

The rise in Larsen & Toubro Ltd.’s share price on 03-Feb is supported by a confluence of factors including strong recent price momentum, solid financial performance, attractive valuation metrics, and increased investor participation. Its leadership in the Capital Goods sector, combined with high institutional backing and consistent growth in sales and profits, provides a compelling case for the stock’s upward trajectory. While it slightly underperformed the sector on the day, the overall trend remains positive, reflecting confidence in the company’s long-term fundamentals and market position.

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