RBI and CMIE capex data is grim
Moneylife Digital Team 06 October 2012

The outlook for capex, beyond FY13, seems to be even grimmer as projected capex spending is likely to decline to just 38% of FY12 levels, according to Nomura Equity Research based on RBI & CMIE data

 
Latest corporate capex data from the RBI (Reserve Bank of India) and CMIE (Centre for Monitoring Indian Economy) depicts further fall in likely capex in FY13 and beyond, according to Nomura Equity Research. The broking house has analysed the latest data on corporate capex from the RBI. As per the RBI data:
Capex in FY13 is likely to be only 61.5% of FY12 levels.
The outlook beyond FY13 seems to be even grimmer as projected capex spending is likely to decline to just 38% of FY12 levels.
Project sanctions in FY12 were just 54% of the level seen in FY11.
 
Overall, Nomura predicts negative trends for the order environment in the medium-term from the RBI data on bank sanctions and disbursements. While new sanctions on the back of the recent reform euphoria could change sentiment positively, Nomura is yet to see any significant pick-up in greenfield/brownfield project activity.
 
According to Nomura, September 2012 data from CMIE depicts continued decline in project starts across key sectors in the economy. It notes the following key takeaways from the latest dataset from the CMIE (September 2012) on project starts, completions and outstanding projects:
Project starts data continue downhill and is now at almost similar levels as 2004 (pre-reform era).
Similarly, projects outstanding data is at June 2003 levels, while project completions also continue to go down.
Sectorally, manufacturing, power, construction and real estate are key drivers of the downhill trend.
 
According to Nomura, while much of the data is historical, the projects data indicates that capex activity is heading towards the pre-reform era (i.e. before FY05) in contrast to L&T’s (Larsen & Toubro) valuation which is much higher at about 20 times one-year forward price-to-earnings ratio P/E (versus pre-FY05 1-year forward P/E of less than 14 times). In the previous cycle, L&T’s order inflow in the domestic E&C (engineering and construction) segment started picking up only 12 months after the pick-up in project starts data. Moreover, margins lagged the overall demand environment by almost three to four years. As such, a case for revival in earnings growth could be too optimistic at this point, predicts Nomura. 
 
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