Turnaround in capital goods sector remains distant: Experts

Because investment climate and order intake remains low

The capital goods sector outperformed other manufacturing sectors as per the index of industrial production (IIP) data for February but a strong revival in the sector remains distant as investment climate and order intake remains low, said experts.

"For capital  goods sector as a whole a month's data is not an indicator of revival. Essentially the IIP data indicates revenue recognition and invoicing of orders which are  booked earlier. Fresh order inflow remains subdued like previous months. There are no big ticket orders and I do not see a quick turnaround,'' said M S Unnikrishnan, managing director of Thermax.

Industrial production in the country rose 0.6 per cent in February, though analysts estimated a negative growth in the month. The boost in production was largely aided by capital goods sector which saw 9.5 per cent growth in February. On a month-on-month basis the sector saw 13.5 per cent growth in February.

The performance of capital goods improved from 1.7 per cent de-growth in January to an unexpected 9.5 per cent expansion in February, which is likely to reflect unevenness in order execution and despatches as well as issues related to data reporting given the lack of improvement in investment activity and new project announcements, Aditi Nayar, economist in credit rating firm Icra said in her research report.

Government data indicates that within the capital goods sector ship building and repairs expanded 105 per cent on a year-on-year basis. Other sectors showing growth include insulated cables, aluminum conductors, heat exchangers and generators/alternators.   

"It (IIP data) may not be a sign of revival for the sector. Capital goods sector is highly volatile. The cumulative April 2012-February 2013 numbers remain weak. Commercial vehicles make up the largest component in the capital goods sector and March data released by the Society of Indian Automobile Manufacturers shows a decline in production of commercial vehicles. I assume capital goods sector to report weak numbers for March,'' said Tirthankar, chief economist of  Patnaik of Religare Capital Markets.

Reacting to  the IIP data,  Planning Commission deputy chairman Montek Singh Ahluwalia said on Friday, “It is very low, not anything one can point to as indicating to a robust return of growth.”