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Corporate Capex Plans For 2015-16 Could Decline 4%

Wednesday, February 25, 2015
By A Business Reporter

If there is one thing corporates are looking for, it is better visibility in terms of a sharp improvement in demand. This seems to be the real reason behind the hesitation to commit larger monies, says  Prasad Koparkar, Senior Director, CRISIL Research

A CRISIL survey of 192 listed, public and private sector companies -- from key sectors such as infrastructure, energy, metals, cement, auto, pharma and textiles -- showed a 4% decline in capex plans for 2015-16. Even more bothersome was an 11% year-on-year decline in the capex plans of private-sector companies polled. Notably, this will follow already subdued spending expected in 2014-15. The survey sample is fairly representative, as the polled companies accounted for about 45% of the capex undertaken by all National Stock Exchange-listed companies (excluding the banking, financial services and insurance sector) in 2013-14.

While 90% of the companies polled were of the opinion that sentiment has improved on the ground and capex should begin to recover by the next fiscal, ironically, near-term plans for their own companies belied this optimism! In terms of sectors, infrastructure and energy are expected to see a small increase in capex, but it will be more than offset by a decline in the manufacturing sector, the survey showed.

Says Raman Uberoi, President, Ratings, CRISIL, “The message coming through is crystal clear: as things stand, there is only one way to kick-start the all-important investment cycle, and that is through public investment. The onus is on the government to do the initial heavy lifting.”

A parallel financial analysis by CRISIL Ratings of 203 large companies that it rates addressed the key question pertaining to the strength of corporate balance sheets to support their capex plans. While there are pockets of stress in the metal and infrastructure spaces, on an overall basis, about the 74% of the capex being planned is by companies with a ‘High Ability’ to carry it out, while only 8% is by those with ‘Low Ability’. What this means is that amid softening interest rates and buoyant capital markets, funding is unlikely to constrain investments.

Says Prasad Koparkar, Senior Director, CRISIL Research, “If there is one thing corporates are looking for, it is better visibility in terms of a sharp improvement in demand. This seems to be the real reason behind the hesitation to commit larger monies.”

In such a scenario, the ability of the government to kick-start investments through fiscal measures -- especially given the additional elbow room afforded by falling crude prices – is crucial because that can initiate the demand cycle.  CRISIL believes this is where spending on infrastructure – specifically, roads, urban infrastructure and railways – is crucial because they have a significant multiplier effect of creating demand for steel, cement, capital goods and commercial vehicles, and spurring investments in the – manufacturing space as well.

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