India awaits growth clues

Dr Rajan based his observation on the resumption in stalled projects providing a boost to inventory and capex cycles whilst reducing distressed bank loans and revitalising growth. Dhananjay Sinha, head research, Emkay Global Financial Services Ltd, in a research report on the capital goods sector said the previous government had cleared 152 projects worth Rs 5,30,000 crore or 5 per cent of GDP and that this failed to reinvigorate private investment and suggested that factors outside of the ambit of clearances may be more relevant.

Mr Sinha said ,“Till the fundamentals adjust adequately, we believe that the domestic investment cycle will meander around low growth trajectory, if not weaken further. As of now nothing has changed on the ground.” Private investments he said, does not depend on government but are a function of sales growth, return on capital, cost of doing business, balance sheet strength and operating leverage on the one hand and the savings-investment mismatch on the other.

“These variables have still not moved much over the past three months; the land acquisition bill still stands intact and reforms in labour law looks distant,” he said. Mr Sinha whose team spoke to 15 companies and some experts said, “It is difficult to expect corporate investments to revive on the back of small rate cuts, given the decline in asset utilisation of companies amid declining productivity of capital and elevated leverage ratio.”

Investments cycle could strengthen only after sequence of bottoming out of variables including (in order) profit growth, margins, sales growth, investments and then credit growth cycle.“Clearly, the bottom for investment and credit growth cycle is still far away,” informed Mr Sinha.