The Hindu Business Line : India Inc keeps investments on tight leash

INDIA Inc may have found profits and cash flow from operations growing at a healthy rate in recent years, but they have nevertheless kept fresh investments on a tight leash.

Between March 2001 and March 2005, the aggregate operating cash flows of 400 listed companies have increased by Rs 38,270 crore (a growth of 121 per cent). Investments in fixed assets and capital work-in-progress have, however, grown only by Rs 16, 433 (a growth of 79 per cent). The list does not include any of the public sector listed companies, which have not yet published their annual report for financial year (FY) 2005.

Measured in terms of operating cash flows, investments in fresh assets, which worked out to 66 per cent at the end of FY 2001, actually came down to 53 per cent at the end of FY 2005. In the heydays of early nineties, investments in fresh assets would typically exceed operating cash flows by more than a factor of one as companies borrowed heavily to invest. Now, investments are well below that of operating cash flows. At the end of FY 2005, debt, too, was only half that of owned funds leaving lot of room to raise funds, if they needed.

So what does a banker make of the cautious approach of companies towards investments and borrowings? According to Ms Kalpana Morparia, Deputy Managing Director, ICICI Bank, growth in cash flows have been stronger than expected. This has, however, not translated into increased investments in fixed assets because companies are worried about factors such as return on investment on their projects over a longer period which may include a down turn in the economy.

She disagreed that the pressure of reporting growth in quarterly profits was behind the reticence of companies to invest. She said companies were now taking long-term view of prospects and careful about their investment plans. So, should the Indian economy look only to newly listed or unlisted companies for big investment plans?

According to her, no listed Indian companies would start stepping up investments over the next 18 to 30 months is her assessment.

Dr Subir Gokarn, Chief Economist, CRISIL, suggests that listed Indian companies are already investing and it might take a while for the numbers to get reflected in financial statements. Macro numbers too point out to investment recovery, he said.

The investment climate was in favour of incumbents and an existing company was far more likely to commit fresh investments than new companies, he added. New companies were emerging in the services sector but not in the manufacturing sector and that was a weakness, he pointed.

He said the environment was now much more stable compared to that of the 1990s and companies were much more careful about their investment plans.

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
India Inc keeps investments on tight leash

New norms on public holding: MNC firms may be most hit

Chidambaram sees economy growing at 7%

Desi spiritual channels offer `nirvana' to the West

Hurdle cleared in Videocon's Electrolux acquisition

PSBs' lower growth targets not acceptable: Chidambaram