Global Economy

Crisil predicts revival in private investment cycle after more than a decade

India’s private investment cycle is set to recover after more than a decade due to government schemes, capital expenditure in sectors like cement and metals and digitisation, credit rating agency has predicted. Accommodative monetary policy, global liquidity and lower interest rates will also support an investment revival the rating agency said.

“Private industrial capex appears to be getting into a whole new cycle after the pandemic hiccup – this time around armed with a new set of growth drivers. First, PLI (production linked incentive scheme) will potentially induce capex growth in new age sectors where we are largely import dependent (telecom equipment, mobile, IT hardware, battery, etc). Second, large players in metals and cement, where utilisation levels are elevated and balance sheets healthy, will continue on their capex plans (brownfield in near term and greenfield in medium to long term),” Crisil said.

It expects the new capex cycle to resemble the one seen in the first decade of the century (2000’s).

The rating agency is the second researcher predicting an economic revival in India within a week. Last week US based borkerage Jefferies said that the Indian economy is poised for a repeat performance of growth between 2003 and 2010 led by corporate deleveraging and profitability, lower bank non performing assets (NPAs) and demand for housing.

Crisil has cited three leading indicators which according to it comfirm recovery namely, Industrial Entrepreneur Memorandum (IEM) filings with the government, the pace of environmental approvals, and the surge in foreign direct investments (FDI) investments which have already crossed pre-pandemic levels.

Firms above Rs 250 crore revenue are mandated to file capex intention as IEM part filings with the government for a greenfield/ brownfield plant. Crisil estimates that companies intend to invest Rs 7 lakh crore in capital expenditure in 2021, the highest since atleast 2012.

Environmental clearances have also picked up pace and are likely to rise 55% to 65% in 2021 from 2020 after falling 36% in 2020 from 2019.

FDI investment has also more than doubled in the first quarter of the fiscal after a 19% rise in the fiscal ended March 2021 indicating strong momentum.

“The new capex cycle will be relatively distinct compared with earlier cycles on several counts. First, asset-heavy sectors such as metals, cement, and mining will see more localised investments, led by large players at their existing sites (brownfield capex). In comparison, asset-light ones such as pharma, telecom equipment, mobile, and electronics will see more greenfield capex, led by PLI as well as supply chain diversification. Second, the pandemic-induced focus on digital and automation will spur growth. Third, rising emphasis on environmental, social, and governance (ESG) compliance will trigger green capex towards energy transition, especially for core industrial sectors,” Crisil said.

Crisil expects the government led PLI scheme to help aggregate industrial capex increase 1.3 times through fiscals 2022-2024 in comparison to fiscals 2018-2020, potentially generating Rs 2.2 lakh crore of capex led by sectors like battery, automotive, and specialty steel.

Improvement in productivity and quality due to digitisation and automation will also help investments. “Amid the pandemic, the need for digitisation has become more urgent. Thanks to such evolving technologies, leading players like Siemens and ABB recorded healthy revenue and order book growth in the past three quarters despite it being a pandemic impacted year. This will not only drive growth for new age sectors such as data centres, but also for players present in the electrical, automation, engineering, and IT/ITeS space,” Crisil said.

However, the new capex cycle will depend on government support and policy measures, implementation thereof, the rating agency said.


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