CMIE data on new projects being announced is pleasantly optimistic, and shows that, from around R2.3 lakh crore at the end of the quarter-ended June 2014, the amount of new investments announced were up to R4 lakh crore at the end of the September quarter, and further to R4.9 lakh crore at the end of December. In other words, acchhe din are here. It is, however, important to read this data cautiously since what CMIE is capturing is investment intentions of the type announced by the Hinduja group on Monday—$10 billion in defence and infrastructure sectors, with no concrete action plan or time frame announced—which are quite different from actual investments. The last 8 quarters, CMIE data also shows, have also seen roughly R4 lakh crore worth of outstanding investments getting cancelled each quarter. Indeed, this is the story that comes out of the latest set of corporate results for the quarter-ended December 2014 where, for a sample of 3,008 companies, profits have contracted 26% over those a year ago. If the investment pipeline looked robust, why would Larsen & Toubro (L&T), in its management commentary, pare down its order inflow guidance for the current year to 15-20% from the earlier 20%?
Equally thought-provoking was the SBI chairman’s observation that it could be several quarters before demand for project finance picks up; the country’s largest lender saw a loan growth of just 7.3% yoy in the three months to December, a sign that the capex cycle is nowhere close to turning. That is also clear from the marginal fall in order inflows at BHEL, where revenues collapsed by 32% yoy as work on several stalled projects wasn’t resumed during the quarter. In fact, BHEL’s receivables remain high at R36,000 crore with revenues squeezed across various sectors. The lack of fuel linkages or clearances is the other hurdle that promoters face and until these are speeded up, more projects could be stalled or even shelved. The slow movement in cement volumes indicates that construction is not seeing a meaningful pick-up in activity. While there is a potentially large pipeline of orders in the infrastructure space in terms of the metros and airports being planned, among others, how fast these will fructify will depend on how they are to be financed. L&T’s management talks of a potential R1.5 lakh crore of orders here, but with private sector balance sheets in a complete mess, what matters is how much the government can finance on its own books, through EPC contracts as opposed to PPP projects.