Government’s planned capex buoys new infrastructure projects as private investments hit trough

Infrastructure project starts are seeing an uptick led by investments by government departments and state-owned firms even as private sector firms remain cautious about investments in the infrastructure sector.

Project starts essentially capture announcement for investments in new projects and need not result in actual investment but is an indicator of business sentiment and is a lead indicator for business opportunity for capital goods firms.

Public sector bodies announced new projects worth Rs 71,000 crore for the three months ended December 31, 2013, up 89 per cent year-on-year and representing a rise of 73 per cent over the quarter ended September, as per a report by Goldman Sachs tracking data released by CMIE. It said this was driven announcements of new solar power capacity.

The average four quarterly new project starts stood at Rs 1.06 lakh crore in Q4 of 2013, up 29 per cent over the moving average the previous quarter. The total investment announced last quarter itself marked the highest level in six quarters.

This was despite sluggish private investment in the sector with new projects announced by the private sector declining to just Rs 20,000 crore against an average of Rs 1.5 lakh crore since 2004.

This is the third consecutive quarter when government capex is higher than private (after 40 quarters of the reverse), and the second consecutive quarter-over-quarter increase in government capex, according to Goldman Sachs.

“With the government reform measures and the Cabinet Committee on Investments (CCI) working on fast-tracking clearances for infrastructure projects, we believe further downside in new investments would be limited and we could potentially be past the bottom,” it said.

The increase in the new projects starts is led by the power sector, followed by manufacturing, transport and mining.

However, the proportion of completed projects of the outstanding projects declined to under 3 per cent, the lowest level in five years. The proportion of stalled or shelved projects increased sharply to over 5 per cent during the last quarter, its highest level since the data has been captured since 1997.

“We believe this will reflect in the upcoming earning seasons (Q3FY14) in the form of muted order book and revenue growth,” the report said, adding that the improvement in the investment by government companies will take a few quarters to start reflecting in terms of execution.

(Edited by Joby Puthuparampil Johnson)

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