ET CEO poll reveals investment constraints

by Mahesh Vyas

The Economic Times of May 16 carried a front-page story based on a poll of CEOs, financial markets and the common man. The poll of CEOs provides some clues on the investment climate in the country. The survey does not ask questions about investments but nevertheless it provides useful insights on the same. What CEOs say is important, because they take decisions to invest, or not to invest.

The survey polled 59 CEOs.

46 per cent of the polled CEOs said that the Modi government’s performance in the past three years was excellent and 41 per cent said that it was average. No one said that it was bad but a significant 14 per cent preferred to not respond. This means that of the 59 CEOs polled, 27 said that Modi government’s performance was excellent and 24 said that the performance was average while the remaining 8 preferred to not respond. A small sample, but as we shall see, a reasonably potent one.

The choice of responses sought is interesting - it is either excellent, or average or bad. "Average" is not good and so, if a CEO wanted to say good, the only choice was "excellent". Likewise, nobody would like to say "bad" and the way out was to not respond. CEO polls usually call for politeness and here the survey design seems to provide an enabling device.

The survey is a lot more potent when it identifies the successes and failures of Modi Sarkar. Infrastructure investments is seen as the single biggest achievement. Corruption comes next. Thirty per cent of the CEOs say that the biggest achievement of Modi Sarkar is that it is corruption free. However, not many (only 10 per cent) believe that the fight against black economy is the biggest achievement. In fact, 37 per cent said that they weren’t sure that the government’s drive against black economy was successful.

That the Modi Sarkar is free of corruption has been an enduring theme through the entire tenure of this government. Why has this not showed up in greater investments? If government corruption is not a hurdle, then investments should have picked up since it was believed that corruption of the earlier government had held up large investments.

Evidently, being corruption-free maybe a necessary condition but it is not a sufficient condition for investments and growth.

The CEO survey bring this out nicely. 44 per cent of these CEOs said that the single largest failure of the Modi government is on the jobs growth front. And, another 29 per cent said that the biggest failure was in tackling NPAs.

The failure on jobs and on NPAs is in fact a reflection of the government’s failure on investments and growth.

Most CEOs are not exactly gung-ho on demand. 47 per cent said demand growth was average, another 9 per cent said it was weak. Only 41 per cent said that demand for their goods and services was strong. Even while being polite and possibly diplomatic to a popular survey, the CEOs have revealed their woes on growth prospects.

Their actions are a lot more stark. In the first half of 2016-17, net fixed assets of listed companies shrank by 9 per cent. This is the first time in the recorded history of interim financial results that companies saw their assets base shrink. And, this happened before demonetisation. Very limited financial results - of only 605 companies (out of a total of about 3,500) show that net fixed assets grew by 9.5 per cent in the second half. The complete picture will become clear only in a few more weeks. But, it may not be too wrong to say that 2016-17 will be the worst year in the history of corporate India when it comes to growth in assets. Companies are simply not willing to wager their resources on an uncertain future. Their polite responses to surveys notwithstanding.

Net fixed assets of listed companies had grown at 8.5 per cent per annum during the past four years. A revival in the investment cycle would require assets to grow by at least 15 per cent per annum. This is still a distant dream.

The ET survey of CEOs does not give much hope that this is likely to happen any time soon independent of whether India Inc is impressed with Modi Sarkar or not.

Unemployment Rate
Per cent
5.0 +0.0
Consumer Sentiments Index
Base September-December 2015
94.9 0.0
Consumer Expectations Index
Base September-December 2015
94.8 0.0
Current Economic Conditions Index
Base September-December 2015
95.0 0.0
Quarterly CapeEx Aggregates
(Rs.trillion) Jun 17 Sep 17 Dec 17 Mar 18
New projects 2.36 1.34 1.30 2.33
Completed projects 0.87 1.21 1.05 1.26
Stalled projects 2.67 0.69 0.95 3.35
Revived projects 0.23 0.34 0.22 0.18
Implementation stalled projects 0.77 0.78 0.59 1.05
Updated on: 20 May 2018 12:20PM
Quarterly Financials of Listed Companies
(% change) Jun 17 Sep 17 Dec 17 Mar 18
All listed Companies
 Income 9.6 7.9 11.9 10.9
 Expenses 9.9 9.0 12.9 19.0
 Net profit -19.8 -18.1 -14.0 -65.1
 PAT margin (%) 5.3 5.5 4.9 3.0
 Count of Cos. 4,493 4,480 4,443 904
Non-financial Companies
 Income 10.2 8.2 13.2 12.8
 Expenses 10.5 8.1 12.4 14.4
 Net profit -25.1 -6.0 12.6 0.7
 PAT margin (%) 5.2 6.2 6.4 9.5
 Net fixed assets 9.2 18.6
 Current assets 78.6 9.3
 Current liabilities 11.0 12.7
 Borrowings 10.4 -4.1
 Reserves & surplus 5.2 9.2
 Count of Cos. 3,471 3,455 3,441 713
Numbers are net of P&E
Updated on: 20 May 2018 12:20PM
Annual Financials of All Companies
(% change) FY15 FY16 FY17 FY18
All Companies
 Income 5.5 1.7 5.3 1.6
 Expenses 5.6 1.9 5.4 0.7
 Net profit -0.1 -9.6 24.1 7.4
 PAT margin (%) 3.1 2.8 3.5 9.0
 Assets 9.5 10.1 7.0 3.5
 Net worth 8.5 11.5 6.3 3.1
 RONW (%) 5.8 4.9 5.9 14.9
 Count of Cos. 25,724 23,767 20,926 23
Non-financial Companies
 Income 4.8 0.9 5.0 1.6
 Expenses 5.0 0.2 5.4 0.7
 Net profit -8.4 19.7 18.6 8.2
 PAT margin (%) 2.0 2.5 3.0 8.2
 Net fixed assets 13.4 17.2 5.9 5.1
 Net worth 7.0 12.2 4.8 3.3
 RONW (%) 4.7 5.2 6.0 14.0
 Debt / Equity (times) 1.1 1.1 1.0 0.2
 Interest cover (times) 1.9 1.9 2.1 14.4
 Net working capital cycle (days) 66 65 62 35
 Count of Cos. 20,974 19,895 17,449 21
Numbers are net of P&E
Updated on: 03 May 2018 2:18PM

Time series available from 1990 onwards