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Corporate India’s capex outlay expected to contract by 20-26% in FY21: Ind-Ra

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Corporate India’s capex outlay expected to contract by 20-26% in FY21: Ind-RaNew Delhi, July 15 (IANS) Corporate Indias capex outlay would contract by 20-26 per cent in a year-on-year basis in FY21 due to the Covid-19 led business disruptions, India Ratings and Research said on Tuesday.

The rating agency predicted that capex outlay will grow 15-20 per cent in FY22.

“The sharp growth in FY22 will mostly be attributable to a favourable base effect. In the absence of a broad-based pick-up in domestic and external demand, faster resolution of stressed assets and deep structural reforms, the private sector investment activity is unlikely to meaningfully recover before FY25,” the rating agency said in a report.

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According to the report, corporate India’s capacity utilisation level continues to hover below 75 per cent since the last round of growth capex between FY12 and FY14. Weak demand growth, even prior to the Covid-19 outbreak, resulted in a shortfall in cash flow generation in relation to the corporates’ expectations.

“Thus, the deleveraging has taken longer than anticipated at the time of the previous round of capex. While capacity utilisation will take at least another four years to peak, broad-based deleveraging will take another six to seven years,” the report said.

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“Few sectors standout in this regard — auto and auto ancillaries, pharmaceuticals, consumer goods and cement. Technology innovation, regulatory developments and changing patterns of consumer demand could prove to be the important drivers of capex spending by these sectors,” said the report.

“The deleveraging process for the capital-intensive sectors, such as metals, infrastructure and power, could be delayed. Uncertainty over the medium-term demand outlook — aggravated by the Covid-19 pandemic — will result in corporates taking on a cautious approach towards capex outlay,” it added.

Source: IANS

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