A precipitous fall in new investments

by Mahesh Vyas

Revised estimates for 2018-19 show that new investment proposals had declined by over 19 per cent compared to the new investment proposals made in 2017-18. This was the fourth consecutive year of a decline in new investment proposals. Earlier, in the preceding three years, the declines were of 24 per cent, 18 per cent and 4 per cent.

Fresh investment proposals data for the first quarter of 2019-20 indicate that the investment climate could be getting much worse.

This was the quarter when elections to the Lok Sabha were held and it is expected that during such times, new investment proposals would remain very low. Government was constrained by the Model Code of Conduct which came into force on March 10, 2019. And, the private sector would rather wait for a verdict before making any large new investment announcements.

Yet, even if we discount for this factor, the new investment announcements during the first quarter of 2019-20 were extraordinarily low.

During April-June 2019, new investment proposals were of the order of Rs.435 billion. This is just 12.6 per cent of the new investment proposals made in the corresponding quarter a year ago or only 17 per cent of the average new investment proposals made during the past four quarters.

Such a steep fall in new investment announcements cannot be explained by the ensuing elections. This is borne by the fact that during the June 2014 quarter when the elections were similarly on, new investment proposals were of the order of Rs.2,758 billion. The average quarterly new investment proposals during the preceding four quarters when the narrative was of policy paralysis, was of the order of Rs.2,573 billion. This estimate has inflated over time. Yet in comparison, the investments announced during April-June 2019 at Rs.435 billion is a fraction of those levels.

The estimate of Rs.435 billion will surely get revised upwards. But, it is unlikely to reach any level that could change the inference that new investments have dropped precipitously.

The moot question is whether this abysmally low value of new investment proposals is an aberration that would sooner than later revert to a norm or is it a sharp drop in the investment sentiment.

If political uncertainty held back investments, then this problem is clearly removed. There hasn’t been a clearer political mandate.

The fall in new investment proposals during the first quarter of 2019-20 has been across public and private sectors. The fall, though, was a bit greater on private sector investment proposals.

New investment proposals by the public sector were down to Rs.184 billion during the quarter. This was just 16.5 per cent of the proposals made a year ago or 20 per cent of the average proposals per quarter made during the preceding four quarters.

In comparison, new investment proposals by the private sector at Rs.250 billion were a mere 11 per cent of what they were a year ago and 15 per cent of the last four quarters’ average.

While the sectoral composition of new investment proposals also shows an across-the-board decline, it does provide some insights into the nature of the fall in new investments.

The fall is very sharp in the case of transport infrastructure. Investments in the transport sector have often led the overall increase in new investment proposals in recent years. This consisted of a smart ramp up in building roads and in aviation. The latter consisted of airlines announcing plans to acquire new fleets of aircraft.

There were no proposals to buy any aircraft or make any other investment into the air transport industry in the quarter of April-June 2019. In contrast, the average investments attracted by this sector in the preceding four quarters were Rs.411 billion.

Roads, that attracted an average investment of Rs.264 billion a quarter in the same recent past, recorded an investment proposal of a meagre Rs.2 billion in the April-June 2019 quarter.

Overall, the transport services sector received investment proposals for a mere Rs.4 billion against an average of Rs.768 billion in the recent past. Since the transport sector was the biggest source of growth in new investment proposals, its fall became the biggest source of the fall in new investment proposals during April-June 2019.

Oddly, the real estate sector shows the least fall in new investment proposals. But, it would be misleading to infer that the real estate sector is doing better than other sectors. This is because a good part of the increase in investments seen in the real estate sector reflects the better disclosure of these projects.

Today, RERA websites of 20 states provide information on real estate projects. This is a big improvement over the situation in 2018 when only 13 states had RERA websites. This has increased the capture of information of projects. So, a good part of the increase in new investment proposals is because of better access to information through the RERA websites.

Yet, new investment proposals in real estate at Rs.109 billion in April-June 2019 were 41 per cent lower than the average Rs.185 billion worth of new investments in the sector in the past four quarters.

Interestingly, a related industry, cement was the only significant sector that showed an increase in new investment proposals. New investment proposals to set up cement capacities added up to Rs.79 billion during April-June 2019. This is 17 per cent higher than the average investments seen in cement capacities in the past four quarters.

Cement though is a clear exception to the steep fall in new investments during April-June 2019. The scale of the fall and its across-the-board nature makes it nearly intriguing. If investment sentiments have indeed fallen so sharply it may be a huge task to heave them back to the levels of the past.

CMIE STATISTICS
Unemployment Rate (30-DAY MVG. AVG.)
Per cent
7.1 -0.7
Consumer Sentiments Index
Base September-December 2015
58.2 0.0
Consumer Expectations Index
Base September-December 2015
60.1 0.0
Current Economic Conditions Index
Base September-December 2015
55.2 0.0
Quarterly CapEx Aggregates
(Rs.trillion) Sep 20 Dec 20 Mar 21 Jun 21
New projects 2.53 1.42 2.13 2.74
Completed projects 0.77 0.86 1.15 0.71
Stalled projects 0.08 0.31 0.26 0.32
Revived projects 0.27 0.15 0.22 0.12
Implementation stalled projects 0.09 0.20 0.32 0.25
Updated on: 26 Sep 2021 3:28PM
Quarterly Financials of Listed Companies
(% change) Sep 20 Dec 20 Mar 21 Jun 21
All listed Companies
 Income -6.3 1.6 14.8 42.0
 Expenses -10.3 0.1 7.3 42.2
 Net profit 47.9 58.3 325.4 124.7
 PAT margin (%) 8.4 8.4 8.9 9.0
 Count of Cos. 4,430 4,450 4,355 4,324
Non-financial Companies
 Income -10.5 0.2 17.5 60.8
 Expenses -14.2 -0.8 10.4 62.9
 Net profit 31.8 54.7 232.8 178.2
 PAT margin (%) 8.1 8.8 9.0 8.4
 Net fixed assets 5.9 2.3
 Current assets 0.8 4.6
 Current liabilities -1.8 0.8
 Borrowings 8.5 -4.2
 Reserves & surplus 3.7 12.0
 Count of Cos. 3,282 3,304 3,251 3,239
Numbers are net of P&E
Updated on: 26 Sep 2021 3:28PM
Annual Financials of All Companies
(% change) FY19 FY20 FY21
All Companies
 Income 13.3 0.2 -1.4
 Expenses 13.6 0.2 -3.7
 Net profit 15.2 -10.4 39.8
 PAT margin (%) 2.1 2.1 7.7
 Assets 9.8 8.5 13.4
 Net worth 8.5 4.4 15.1
 RONW (%) 3.8 3.5 9.5
 Count of Cos. 31,749 30,612 4,154
Non-financial Companies
 Income 14.0 -1.7 -3.9
 Expenses 14.2 -1.4 -5.6
 Net profit 21.4 -21.1 25.5
 PAT margin (%) 2.9 2.4 7.3
 Net fixed assets 5.6 10.0 3.6
 Net worth 7.9 2.1 13.3
 RONW (%) 6.4 4.9 10.7
 Debt / Equity (times) 1.0 1.1 0.6
 Interest cover (times) 2.3 2.0 4.3
 Net working capital cycle (days) 74 81 64
 Count of Cos. 25,424 24,480 3,033
Numbers are net of P&E
Updated on: 20 Sep 2021 8:43AM