 "economy, recovery, growth, manufacturing, sales, exports")
Companies planned to have fewer new projects in the September quarter (Q2), reversing a sequential growth trend seen in the past two quarters.
The value of new projects declined 59.3 per cent year-on-year (YoY) in the September quarter (Q2), while compared to Q1, it was down 58.3 per cent. Completed projects rose 9 per cent YoY, and 18.3 per cent sequentially.
The value of new projects was Rs 1.05 trillion for Q2, according to data from the Centre for Monitoring Indian Economy (CMIE). It was over Rs 2.5 trillion in the corresponding quarter last year, as well as in Q1 this year.
The CMIE database captures capex by private and government entities. An improvement in capex is seen to be an important part of an economic recovery.
Capacity utilisation had recovered in the March quarter, according to the Reserve Bank of India’s Order Books, Inventories and Capacity Utilisation Survey (OBICUS). The data is released with a lag. The worst of the second wave of Covid-19 hit the country after this — in the June quarter. The survey had shown an improving trend till then.
“The aggregate capacity utilisation (CU) level increased to 69.4 per cent in Q4:2020-21 from 66.6 per cent recorded in the previous quarter, supported by gradual improvements in demand conditions after further easing of restrictions related to the Covid-19 pandemic, before the onset of its second wave in mid-March 2021,” it said.
Capacity utilisation is a measure of how much of a company’s manufacturing ability is actually being put to use. Companies only invest in creating additional capacity by setting up new factories, for example, if the existing capacity is in danger of being exceeded. The March numbers suggest that over 30 per cent of capacity remained unutilised at the time.
Capital goods include machinery and tools used in factories to make other goods. Companies specialising in capital goods do well when more factories are being set up and there are increased investments in creating fresh production capacity. The S&P BSE Capital Goods Index had hit an all-time high in September. It has nearly doubled since October 2020. Some of this may have to do with a general market euphoria which has taken the S&P BSE Sensex to new all-time highs.
“Relatively, the sector is still under-owned,” said independent market analyst Ajay Bodke. There have been expectations of a private sector revival for some time now, he said, but one will have to see if aggregate demand picks up in the festival season. The next two quarters will be closely watched, according to him. The capex cycle could turn if demand does well during the next 3-6 months, he said.
The government may also be able to give a leg-up to capex, given improved central tax revenue numbers, according to the September 2021 Economy Watch from EY India, part of the global network whose services include consulting, taxation and strategy, among others. It noted the budgeted fiscal deficit number for FY22 points to an intent to support the economy. GDP, a measure of the size of the economy, remains below pre-pandemic levels. “….the government may be in a comfortable position to support the budgeted expenditures for FY22 and even to possibly supplement capex to levels higher than the budgeted amounts. For FY22, the budgeted fiscal deficit is at 6.8 per cent of GDP, indicating that the central government realises the need for keeping up the stimulus so as to support demand,” said the report from a team headed by EY Chief Policy Advisor D K Srivastava.
Employment and wage cycles are yet to look up meaningfully, pointed out Sreejith Balasubramanian, economist - fund management, IDFC Asset Management Company. Exports have done better but could be affected by global factors, including recent developments in China and any resurgence in Covid-19 cases in major markets like the US. Capex could see traction in some specific sectors where the supply-demand gap is low, but this may not immediately become widespread.
“I think it’s a little too soon to see a uniform private capex cycle,” he said.
The value of new projects declined 59.3 per cent year-on-year (YoY) in the September quarter (Q2), while compared to Q1, it was down 58.3 per cent. Completed projects rose 9 per cent YoY, and 18.3 per cent sequentially.
The value of new projects was Rs 1.05 trillion for Q2, according to data from the Centre for Monitoring Indian Economy (CMIE). It was over Rs 2.5 trillion in the corresponding quarter last year, as well as in Q1 this year.
The CMIE database captures capex by private and government entities. An improvement in capex is seen to be an important part of an economic recovery.
Capacity utilisation had recovered in the March quarter, according to the Reserve Bank of India’s Order Books, Inventories and Capacity Utilisation Survey (OBICUS). The data is released with a lag. The worst of the second wave of Covid-19 hit the country after this — in the June quarter. The survey had shown an improving trend till then.
“The aggregate capacity utilisation (CU) level increased to 69.4 per cent in Q4:2020-21 from 66.6 per cent recorded in the previous quarter, supported by gradual improvements in demand conditions after further easing of restrictions related to the Covid-19 pandemic, before the onset of its second wave in mid-March 2021,” it said.
Capacity utilisation is a measure of how much of a company’s manufacturing ability is actually being put to use. Companies only invest in creating additional capacity by setting up new factories, for example, if the existing capacity is in danger of being exceeded. The March numbers suggest that over 30 per cent of capacity remained unutilised at the time.
Capital goods include machinery and tools used in factories to make other goods. Companies specialising in capital goods do well when more factories are being set up and there are increased investments in creating fresh production capacity. The S&P BSE Capital Goods Index had hit an all-time high in September. It has nearly doubled since October 2020. Some of this may have to do with a general market euphoria which has taken the S&P BSE Sensex to new all-time highs.
“Relatively, the sector is still under-owned,” said independent market analyst Ajay Bodke. There have been expectations of a private sector revival for some time now, he said, but one will have to see if aggregate demand picks up in the festival season. The next two quarters will be closely watched, according to him. The capex cycle could turn if demand does well during the next 3-6 months, he said.
The government may also be able to give a leg-up to capex, given improved central tax revenue numbers, according to the September 2021 Economy Watch from EY India, part of the global network whose services include consulting, taxation and strategy, among others. It noted the budgeted fiscal deficit number for FY22 points to an intent to support the economy. GDP, a measure of the size of the economy, remains below pre-pandemic levels. “….the government may be in a comfortable position to support the budgeted expenditures for FY22 and even to possibly supplement capex to levels higher than the budgeted amounts. For FY22, the budgeted fiscal deficit is at 6.8 per cent of GDP, indicating that the central government realises the need for keeping up the stimulus so as to support demand,” said the report from a team headed by EY Chief Policy Advisor D K Srivastava.
Employment and wage cycles are yet to look up meaningfully, pointed out Sreejith Balasubramanian, economist - fund management, IDFC Asset Management Company. Exports have done better but could be affected by global factors, including recent developments in China and any resurgence in Covid-19 cases in major markets like the US. Capex could see traction in some specific sectors where the supply-demand gap is low, but this may not immediately become widespread.
“I think it’s a little too soon to see a uniform private capex cycle,” he said.
