Mumbai: The capital expenditure of top Indian companies stayed resilient in the April-September period of FY20, according to ICICI Securities, but the condition of growth drivers for such expansion remains challenging.
A study of 1,192 non-financial companies by the brokerage showed the amount spent on capex like plant, property, equipment, intangibles and acquisitions in the first half of FY20 was Rs 2.4 lakh crore. This amount is a 5.5 per cent increase over FY19 net fixed assets (NFA).
“Given the background of election-related uncertainties, general moderation in growth, risk aversion and adverse weather conditions in Q2FY20, the marginal dip in capex during H1FY20 is not disappointing,” analysts Vinod Karki and Siddharth Gupta said in a client note.
Energy, auto, retail, technology services and materials constituting 44 per cent of the FY19 NFA base drove capex, although most capexheavy sectors such as utilities, industrials, telecom and cement disappointed, the brokerage said.
ICICI Securities said overall macro drivers of capex continue to remain challenging due to muted capacity utilisation of 69.8 per cent in the September quarter, weak demand, ebbing business confidence and limited government capability to spend.
Companies such as MRF, Aarti Industries, CEAT, Avenue Supermart and Biocon have spent 16-17 per cent of FY19 NFA base.
The aggregate ‘operating cash flow less interest’ payment stood at Rs 2.7 lakh crore, which is more than adequate to fund discretionary capex. However, the excess operating cash generation came from sectors like IT, consumption, healthcare, materials, utilities and energy.
“Capital-intensive companies, principally in the power, metals, energy and industrial sectors, are struggling to cover cost of capital and this has, over time, curbed their investments,” said GV Giri, president & head of research, IIFL Securities. “The economy is likely to struggle to crawl out of the problem of stalled projects, especially in power and real estate, and the investment cycle is unlikely to revive in the near term, given the weak domestic demand and declining commodity prices.”
Source: Economic Times