Business Standard

Who will invest for growth?

This series checks out if an investment-led recovery can kick in any time soon

Read more on:    Growth | Inflation | Gdp | Economy | Rbi

With the government in a tight spot as far as spending is concerned, and corporate balance sheets weighed down with debt, where will the 7% (and 8% for FY15) that the government speaks about for next year come from?

True, a number of companies are sitting on piles of cash, but is there hope of an investment-led recovery to kick in any time soon?

Business Standard presents a series that delves into this growth dilemma: ‘Who will invest for growth?’

 

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Oil companies are investing despite subsidy blow

ONGC leads the pack private firms also do their bit

By Ajay Modi

Though the fuel subsidy burden has seen a consistent rise, this hasn’t deterred public sector companies in the oil sector from lining up huge investments. While the government bears about 60 per cent of the fuel subsidy burden for petroleum, it doesn’t invest in the sector. It is the government-owned companies that are investing from internal resources. The investment assumes significance, given the backdrop of a highly volatile crude oil and the growing dependence on imported crude oil and natural gas.

Upstream oil company Oil and Natural Gas Corporation (ONGC) leads the pack, with an investment outlay of Rs 1,63,956 crore for the 12th five-year Plan. During the Plan period, the company would focus on core exploration and oil and gas production, in India and abroad. ONGC would intensify exploration and production activities in frontier areas. It is also planning to exploit unconventional sources of energy and develop alternative ones.

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Capex plans ready, but on paper

Cash-rich PSUs say red tape blocking infrastructure investment push

By Sudheer Pal Singh & Ruchika Chitravanshi

Several cash-rich public sector companies are working on huge capital expenditure plans, courtesy a nudge from the prime minister in October, but most plans remain on paper due to delays in green clearances and land acquisition .

According to the latest data, 45 listed central public sector undertakings (PSUs) are sitting on a cash and bank balance of Rs 196,000 crore. A bulk of this cash pile, around 70 per cent, is with the top five — Coal India Ltd (CIL), ONGC , NMDC , NTPC and Oil India.

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Foreign capital cushions blow

Accounts for nearly eight per cent of capital investments in India in FY11

By Krishna Kant

Foreign capital accounted for nearly eight per cent of capital investments in India in FY11 — up from a 1.1 per cent share in FY05. Now that the investment cycle is slowing, will foreign capital extend a lifeline?.

The recent trend in capital inflows in India has also been encouraging. Foreign institutional investors (FIIs) have invested over $18 billion during the calendar year so far. In comparison, FIIs were net sellers in 2011, withdrawing nearly $500 million worth of investment from India during the January to November 2011 period. Foreign direct investment (investment in physical assets) flows remain positive but inflows in the first half of 2012 contracted 42.8 per cent to $10.4 billion, according to figures by the United Nations Conference on Trade and Development. This was in contrast to FY12, when FDI in India grew 65 per cent to $35 billion.

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Cash-rich companies are investing, but selectively

Demand low, regulatory issues seen as bigger hindrances

By Vishal Chhabria

In a sea of highly leveraged balance sheets, just 57 companies stand apart. These have over Rs 1,000 crore of cash and investments on their books, making up at least 10 per cent of their market capitalisation. Their debt is also manageable (debt-equity of less than 1 time; in fact, below 0.5 for most).

These 57 companies account for 37 per cent of the combined market cap of Rs 52,63,896 crore of the sample of 2,095 companies under study, their share in the total cash and investments of Rs 976,564 crore is a shade above 51 per cent — of this, almost 55 per cent are cash and bank balances. There’s more. Most of these companies have reported steady cash flow from operating activities. A third of these are owned by the government.

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Crisis of confidence hits banks, borrowers

Bankers say capital not an issue corporate lending is dry due to high interest rates and supply bottlenecks

By Manojit Saha

Last month, senior executives of a foreign bank with significant presence in India met clients from key markets abroad to explain the implications of the reforms announced by the Indian government in early September. What they heard from their clients was simple: while there was a consensus that the announcements helped avert possibilities of a sovereign rating downgrade, hardly did anyone believe there was a realistic chance of these being implemented.

“Growth coming back to seven per cent in the next financial year is highly unlikely. At best, we can say, ‘next year may be better than the current one’. But the worst part is a crisis of confidence,” said a banker who attended the meeting. According to bankers, that precisely is the reason why corporate credit growth continues to remain sluggish. The Reserve Bank of India () has cut its growth projection for the current financial year to 5.7 per cent in October, from 7.3 per cent projected in April.

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It's safety first for corporate India

As demand slows down, companies would rather consolidate operations than go for aggressive capital expenditure

By Krishna Kant 

The government is hardly in a position to provide stimulus to industry. That’s a given. But can industry help itself and in turn contribute to economic growth? Corporate India’s answer to that is an even more obvious one: it’s safety first in an uncertain economic environment, where demand has been slowing.

Observers say India Inc would rather spend the next few years consolidating its operations rather than go for any aggressive capital expenditure in an uncertain environment. “Companies take up new projects only in two scenarios: if they are generating free cash flows or if they foresee strong growth. Neither of this holds true right now. So, I don’t expect any quick revival in the corporate investment cycle,” says Dhananjay Sinha, co-head, institutional equity, Emkay Global Financial Services. 

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Economy looks at government for help

A widening fiscal deficit might stoke and prompt rating agencies to cut the country’s sovereign ratings


By Dilasha Seth and Indivjal Dhasmana

India’s economic growth could trip to a decadal low in 2012-13, in case it falls below the 6.5 per cent in 2011-12 — widely expected now, even by the government.

Economic growth was a mere 5.5 per cent in the first quarter of this year against eight per cent in the corresponding period of 2011-12. A quarter before, the GDP grew just 5.3 per cent. The government expects the economy to do better in the second half. Even in the global financial crisis period of 2008-09, growth was 6.7 per cent.

But in 2008-09, the government had much more room to provide stimulus to industry.

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