NBFC woes to delay investment revival
India’s private investment is unlikely to pick up as recovery in capacity utilisation in the March quarter has made a turnabout. The new timeline for a revival has been pushed to 2019, according to industry experts and officials. According to Reserve Bank of India (RBI) data, capacity utilisation was at 73.2 per cent in the June quarter, lower than 75.2 per cent in the March quarter.
The return of private investments in the country is struggling with lack of funds and uncertainty due to the approaching elections, said experts. “We may not see a revival in the current year as non-banking financial companies (NBFCs) have taken a hit in lending and banks may not have substituted the same. We need to wait another quarter to know a clear trend of utilisation levels and the revival of private investment cycle. There are few signs of revival when one looks at the borrowing activity. Cement and steel are seeing signs of revival, which is primarily led by the real estate sector,” said Madan Sabnavis, chief economist at CARE Ratings.
Cement companies such as JK Cement, Ambuja Cements and Dalmia Bharat have announced fresh capacity addition plans in the past year. The cement ind ustry has started expanding capacity in a bid to increase market share despite the current demand-supply mismatch.
The overall capacity utilisation figure crossed the 75 per cent-mark for the first time since the March 2016 ended quarter, RBI data shows. Not all companies and industries are, however, languishing below the 75 per cent capacity utilisation. “For some of the stronger companies, such as cement, metals, paper and automobile, it is higher by around 10 per cent over the industry averaging at 80-90 per cent for sectors. These companies have started to undertake either brownfield expansions or rely on acquisitions,” said Rahul Prithiani, director at Crisil Research. “A large-scale revival is possible only after elections, assuming the demand environment continues to improve,” he added.
Though clear indication for a revival in private investment is not yet visible, experts and officials are certain the sectors will be different from the last cycle. “The form in which private sector investment will arrive will change. Earlier, it used to be lot of roads. Private capital is shy of roads now,” says R Shankar Raman, chief financial officer at L&T.
“Airport orders are also private sector capital expenditure. Small portion of auto capital expenditure is still happening. We do believe given the tariff issue, trade war and firming up of demand. The minerals and metals space will see expansion after the current round of shopping for stressed assets is over,” he added.
Steelmakers such as JSW Steel, Tata Steel and ArcelorMittal made a beeline to pick stressed assets, which were up for debt resolution at the National Company Law Tribunal, in the past six months.
Along with metals, consumer facing sectors such as fast moving consumer goods (FMCG), automobiles and real estate are witnessing better utilisation.
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