Spends by the government and the country’s public sector corporations on infrastructure projects have risen by 32.3% in the 10 months to January with contracts worth Rs 2.82 lakh crore awarded, reports fe Bureau in Mumbai. The value of projects awarded and tendered in January are the highest in eight years at Rs 48,322 crore and Rs 91,949 crore, respectively. Much of the action is in the roads, railways and water sectors. Encouragingly, the tenders floated for Rs 5.13 lakh crore between April 2015 and January 2016 is a jump of 56.40%.
It must also be remembered that in FY15 the value of projects had fallen by some 13% to Rs 3.53 lakh crore, as estimated by Emkay Research, partly because the government needed to rein in expenses to be able to meet the fiscal deficit target.
Moreover, companies were not really keen to add capacity.
Investments by government assume importance since most companies in the private sector remain over-leveraged and, therefore, unable to add new capacity. Also, surplus capacity across sectors and the lack of visibility on demand have made the private sector cautious, which is why the order books of engineering companies are not exactly overflowing. CMIE data showed the quantum of new investment proposals in Q3FY16 was just about a fourth of that last year.
Going by the GDP numbers, the economy grew at a reasonably good 7.3% year-on-year in the three months to December. However, India’s corporate sector, banks included, has turned in a very dull performance — net profits for a sample of nearly 3,000 companies have fallen nearly 10% y-o-y. That’s because revenues are down 3.3% y-o-y — partly the impact of falling commodity prices and partly the inability of companies to drive volumes in a sluggish economy.
Nevertheless, Larsen & Toubro, which is considered a bellwether for the Indian economy, reported a 19% increase in its net profit for Q3FY16 on the back of a slight pick-up in orders from the roads and power transmission sectors.
However, the company management said that it is expecting to close the current year with order inflows at levels similar to those in FY15 of around Rs 1.55 lakh crore, suggesting not too much capacity addition is taking place. In its commentary L&T also said that a revival in private sector capex was still some time away. In the September 2015 quarter, L&T had scaled down its guidance on order inflow to 5-7% growth, against the earlier forecast of 10-15%.
Public sector major BHEL reported a net loss of Rs 1,102 crore in the latest quarter due to poor execution, lower sales realisations, pricing pressure and rising raw material costs, which was despite a healthy order inflow.