Mumbai: Even as overseas investors are pumping huge amount of money into Indian equities anticipating a stable government at the Centre post Lok Sabha election, foreign brokerage house Credit Suisse on Thursday said that poll verdict won’t be able to kick-start investment cycle as only a fourth of projects are struck with the central government and two thirds of these are in the power and steel sector, both wracked with massive over capacity.
While the current rally in industrial and financial sector stocks is expected to continue for some more time, Credit Suisse noted that these sectors would underperform the market towards the end of this year.
According to the brokerage, the markets could also see a steep correction in case the Bharatiya Janata Party (BJP) led National Democratic Alliance (NDA) fails to win more than 180 seats in the upcoming Lok Sabha elections.
“Hopes are high among investors that elections can restart the investment cycle. Even if the electoral verdict is favourable, such misplaced optimism ignores the realities of the business cycle, and overestimates the powers of the central government,” Credit Suisse said in a note to its clients.
According to the brokerage, the true utilisation in thermal power generation is below 60 per cent, near 20-year lows.
The sudden stoppage of working capital loans to state electricity boards (SEBs), risks of fuel price pass-through schemes, and stalled reduction in aggregate technical and commercial (AT&C) losses has hurt demand growth. “The central government cannot revive it, but the state governments need to,” it said.
The brokerage house also pointed out that the legal challenges are likely to stall the national highway projects and Indian railways lacks the financial muscles to go for big ticket projects.
“The government may also struggle to give a fiscal boost as underlying stresses in government finances remain,” the foreign brokerage explained.
However, Credit Suisse said that capital inflows into India would continue due to steady year on year (YoY) increase in earnings per share of Index constituents and a stable currency.
