As per the latest data available, the capital expenditure (capex) growth the new project announcements were down significantly in 3QFY21, the quality of projects has improved materially. The new public sector projects are mostly in infrastructure sector, with state governments taking the lead over central government. The private sector projects are mostly in manufacturing sector driven primarily by the production linked incentive (PLI) scheme announced by the central government.
On the consumption side, the real wages for non-government non-financial sector have continued to decline for fourth successive quarter in 3QFY21. The employee cost for this sector is presently at lowest level in a decade.
I note the following trends from some recent brokers’ reports relating to new capex.
Phillips Capital analyzed the recent capex data published by CMIE and noted the following:
· New projects announced in 3QFY21, at Rs 801bn, were lower 22% qoq/89% yoy due to large changes in base quarters coupled with continued challenging environment. Private sector accounted for 86% of new capex announcements. Renewables and mining witnessed strong growth while manufacturing declined sequentially.
· The execution was poor in 3QFY21, with project completion declining sequentially. Road sector was the only sector that witnessed strong execution.
· Stalled projects were flat yoy and qoq. These projects now account for 11.5% of all projects under execution. Lack of funds (17%), raw material supply (17%) and other issues (41%) were key reasons for project stalling.
· The quality of projects remains high. Recent government initiatives on PLI’s have begun reflecting in new projects, particularly in the consumer electronics sector. This trend is expected to gather pace as PLI’s are finalized for Bulk Drugs manufacturing and Automobiles sectors over the next few months. This may further push up the share of manufacturing from c. 30% of new projects in the last three years and result in growth in project announcements in FY22.
As per IIFL Securities “corporate India capex outlook is looking up again (14% Cagr over FY21-23ii) after two years of continuous decline (9% Cagr drop in FY19-21) driven by PLI linked investments and growth in emerging segments like data centres. Telecom, Cement, Auto, Pharma & Healthcare, Consumer Electronics, and Chemicals are the key sectors driving investments.”
The brokerage forecasts “incremental investments worth Rs700bn under the PLI scheme, for various manufacturing sectors. However, given the quantum of incentives doled out and capex intensity, Electronics, Auto and Pharma are likely to be the largest sectors. • Most PLI-related capex will be spread out over 3 years (FY22-24).”
The brokerage notes that most of the PLI segments are light engineering sectors, but will require higher deployment of automation and robotics across various applications (especially in sectors involving large-scale electronics manufacturing from foreign players).
