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Sector Review: Capital Goods

Sector Review: Capital Goods
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First Published: Thu, Mar 19 2009. 09 39 AM IST

Updated: Thu, Mar 19 2009. 09 39 AM IST
A disaggregation of the FY02-08 investment cycle, the key driver for growth acceleration then, leads us to believe that there is significantly more bad news to come for the capital goods and investment-linked sectors.
Between FY02-08, one half of the incremental investments came from the private corporate sector, with its share in GDP tripling during that period.
The next largest contributor to growth was public sector with its share jumping by nearly 50%, even as household investment share remained pretty static.
The jump in corporate and public sector capex was led by a sharp surge in underlying profitability, expectations of high growth, improving public finances, buffeted by abundant availability of risk capital.
With all these variables now in reverse gear, even as household capex continues to hold up, overall investments will undershoot nominal GDP growth (which itself is slowing down) over the next 2-3 years, in contrast to the ~2x faster growth recorded in FY02-08.
From a macro perspective, all investment-linked sectors will continue to underperform consumption-linked sectors by a big margin.
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First Published: Thu, Mar 19 2009. 09 39 AM IST
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