Capital spending in India to take 12 more months to recover: S&P

Source: Economic Times

Capital spending in India is likely to take 12 more months to start recovering as private companies have adopted a ‘Wait-And-See’ approach, says a report by global ratings agency Standard and Poor’s.

“We expect capital spending in India will continue to fall in fiscal 2016 despite its economy being one of the few bright spots in Asia-Pacific,” it said.

According to the report, corporates in capital-intensive sectors are mostly focusing on improving profitability and lowering leverage rather than looking at new projects.

“We believe capital spending will take 12 more months to start recovering,” said the report titled ‘India’s Private Sector Companies Adopt Wait-And-See Approach To Capital Spending’.

It said research indicates that capital expenditure peaked in fiscal 2014 at Rs 3.7 lakh crore for the top 100 Indian companies and it would decline over the next two years.

India’s fiscal year runs from April to March. It, however, added that “we expect government-owned companies and Reliance IndustriesBSE -0.17 % to lead capital spending before a broader-based pick-up occurs.”

India, it said, is currently viewed as one of the few bright spots in the Asia-Pacific region and there is significant optimism all around, adding that the recent Union Budget has also bolstered optimism.

“India’s economic growth, according to revised GDP numbers based on a new methodology, is strong, and we expect further improvement.

“However, top Indian corporates are not planning to increase their investments yet. We believe capital spending by top Indian corporates will further decline by 10-15 per cent in fiscal 2016 from its peak in fiscal 2014,” it said.

This is because companies are “yet to materially benefit” from the government reforms or from an improvement in the Indian economy, it said, adding that the interest rates were high until last year and the global economic environment is also not rosy.

The report further said that the slowdown, “we believe”, will be most evident in utilities and infrastructure, with about 20 per cent decline, and the metals and mining sector, with about 30 per cent decline by fiscal 2016 as compared to fiscal 2014.

“The few sectors in which we expect companies to maintain or increase capital spending are oil and gas, telecommunications and auto… This is because of the large capital spending programmes of Reliance Industries and Oil and Natural Gas Corp, which we believe will continue until fiscal 2016,” it added.

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