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Construction orders boosted capital goods growth in October

The growth rate over that in October 2017 was six per cent in primary goods, 16.8 per cent in capital goods

Amritha Pillay  |  Mumbai 

road, road construction, highway

October's double-digit growth in the sector appears to have been pushed by the demand for machinery.

The growth rate over that in October 2017 was six per cent in primary goods, 16.8 per cent in capital goods, 1.8 per cent in intermediate goods and 8.7 per cent in infrastructure, according to the Index of Industrial Production (IIP) estimates.

However, sectoral officials and experts wonder if this trend will sustain, for various reasons.

"The growth to the segment is coming from machinery. machinery for roads, dams, water segment development and low-cost housing are all contributors," said M S Unnikrishnan, managing director at Thermax, the engineering major.

The country, he notes, has also started export of machinery, mainly for real estate, contributing to the growth.

CARE Ratings, in a note on Thursday, said: "IIP growth for the first seven months (April-October) of the (financial) year indicates that cumulatively increased by 8.6 per cent, compared with 0.7 per cent last year. If this were to be looked at from the point of view of machinery, we see a similar picture. Electrical machinery on a cumulative basis has increased by 3.8 per cent and non-electrical by 7.3 per cent."

This holds true for large capital goods companies. Larsen & Toubro (L&T) reported 46 per cent growth in order inflow in the first half of the financial year. "(This) growth was led by infrastructure - water and heavy civil infra saw a fair bit of traction but the growth was broad-based across infra sub-sectors. Power segment inflows were boosted by flue-gas desulfurisation orders booked in the second quarter," analysts with JP Morgan wrote in a November 1 note on

State-owned Bharat Heavy Electricals has also gained, from its focus on non-electrical business opportunities. "(This) focus resulted in an upsurge in order inflows from the industry segment, which stood at Rs 16.5 billion, (up) 65.3 per cent year on year," analysts with ICICI Direct noted in a report dated October 26.

There is uncertainty on the growth rates keeping this pace. Madan Sabnavis, chief economist for CARE Ratings, said: "The growth in capital goods is seen on a low-base effect. In addition, the NBFC (non-bank finance corporations) sector was impacted in the October-November period, the result of which will show in the coming month's data."

"Growth in tractors contributed to the capital goods sector and tractors are heavily dependent on NBFC lending. It is unlikely the growth trend may continue the same way."

First Published: Thu, December 13 2018. 20:52 IST
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