India Inc to spend more on capex despite slowdown: Crisil report

India Inc to spend more on capex despite slowdown: Crisil report

This is evident from the fact that despite bad times most large companies have continued to invest in capacity expansion and in new projects.

A research study conducted by Crisil, spanning 11 key sectors, estimates that aggregate industrial investments would continue to grow at a moderate pace over the next three years, with total investments projected at Rs 10,500 billion. This is clearly in contrast to experiences in past when a deceleration in economic growth resulted in a decline in corporate investments.

According to Crisil Research, the growth in capex (capital expenditure) can largely be attributed to continued investments in sectors such as power and telecom along with expectations of a gradual economic recovery by 2010-11.

Crisil Research head Manoj Mohta said, “Power, telecom and gas distribution are expected to witness strong investor interest. Continuing supply deficit and increased government thrust to augment power generation capacity would attract investments into the power sector.” The continuing buoyancy in mobile subscriber growth and the sheer size of the potential market are the main reasons for the telecom sector to attract huge investments.

The anticipated increase in natural gas supply is expected to propel investments in gas pipelines and city gas distribution networks, he said.

The constraints
The study observed that the recession in developed economies and falling prices have reduced the attractiveness of the business case for investing in capacity expansion in the metals, oil refining, and textiles sectors. Crisil expects some of the projects in these sectors to be delayed beyond their planned commissioning dates. Also, in sectors facing overcapacity such as cement and automobiles, the flow of investments would be subdued.

According to Mohta, based on Crisil’s current assessment of over 500 projects and interactions with stakeholders across key sectors, investments in capex will grow at 7 per cent per annum 2008-09 and 2011-12. This, however, is far lower than the 30 per cent annual growth witnessed in the previous 3 years.

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