New Delhi: Reams have been about slowing investment demand. Companies in the capital goods and construction space are expected to end the current financial year with weak order books.
However, a look at recent external commercial borrowing (ECB) approvals indicates that capital expenditure is about to rise, says economists at Nomura.
In the past couple of months, ECB approvals have been strong at $3.4 billion in December and $2.7 billion in January.
Nomura’s Sonal Varma and Ketaki Sharma write:
More importantly, approvals for capex-related activity have accelerated over the last two months after a sluggish pace in May-November 2010. This includes loans taken out for imports of capital goods, modernisation, new projects and rupee expenditure on capital goods.
That augurs well for the next financial year and vindicates the projections of the Prime Minster’s Economic Advisory Council. Read document-
While private gross domestic capital formation growth is estimated to come down to 15.3% this fiscal from 29.1% the previous year, it is expected to pick up. In financial year 2012, it will grow to 15%.
The Prime Minister Economic Advisory Council noted in its February review:
In the coming year (2011/12), the Council expects further improvement in the investment rate, which may rise to 37.5 per cent, while the domestic savings rate would rise to 34.7 per cent, partly on account of further improvement in government finances.
So far, construction stocks seem not to have priced in this information. Perhaps, they are waiting for increasing order books and what they see on the ground.