October 24, 2018

The investment cycle has finally begun to turn

Research Director and Senior Fellow, Niranjan Rajadhyaksha writes in Mint on the cyclical recovery in investment activity. Excerpts below:

 

''Has the investment cycle turned?

 

There are convincing signs that it has. The most immediate one is the momentum in cement demand, steel demand and the import of capital goods. There are also some weak signals that corporate deleveraging has begun. The interest cover ratio of manufacturing firms has been rising in recent quarters, and is currently at its highest level since the March 2012 quarter. However, much of the fresh investment seems to be concentrated in expanding existing production facilities rather than in greenfield projects. The burden of delayed projects continues to weigh on the investment cycle.

 

One of the best ways to assess whether companies have reason to buy new capital equipment to meet demand is by looking at the capacity utilization numbers released by the Reserve Bank of India (RBI). There is some good news here. Seasonally adjusted capacity utilization is now at a five-year high. It is also above the long-term average. Excess capacity continues to be far higher in an aggregate sense than what it was a decade ago—at the end of an unprecedented economic boom—but its steady decline in recent quarters should increase the attractiveness of new corporate investments."

 

Read the full article here.

Topic : State Capacity / In : OP-EDS
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