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Corporate capex growth to stay muted over FY18-FY20: Ind-Ra

11 Oct 2017 Evaluate

Amid weak consumption demand, global overcapacity and working capital disruptions due to the goods and services tax (GST), credit rating agency, India Ratings and Research’s (Ind-Ra) sees muted private capex conditions to continue for two more financial years. In its latest report it raised concerns over the capital expenditure growth and said that the corporate capex growth would stay muted over FY18-FY20. It expects capex to grow at a compounded annual growth rate of just 5-8 per cent or by Rs 1 trillion over FY18-FY20, which also will mainly be in the form of maintanence capex.

The Fitch group company further said that any meaningful capex recovery will happen only after FY20 and will be led by the private sector. As per its report, corporates are likely to show an unwillingness to invest in long-term projects due to muted demand and significant leverage, despite a low interest rate environment. Further, it noted that out of the top 200 asset heavy corporates, only 125 non-stressed corporates will spend on maintenance, while the remaining 75 stressed corporates may not even be in a position to incur maintenance capex which may impact on the investment recovery. Besides, it said that sectors like oil and gas, auto and telecom will be the main drivers for marginal growth over FY18-FY20.

The rating agency further pointed that though the Insolvency and Bankruptcy Code is likely to streamline debt resolution through debt reduction options for stressed corporates, the low capacity utilization of 40%-50% of stressed corporates could delay the overall recovery in investment, as these stressed corporates may pull-back investments of the non-stressed corporates.


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