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India Inc will focus on utilising more of its existing capacity rather than putting up greenfield projects, says an Alphawise research report from foreign institutional investor Morgan Stanley.
The firm found that a third of corporates will explore de-bottlenecking strategies to improve productivity, while 30 per cent are looking to take up brownfield expansion. Morgan Stanley surveyed 328 large and medium-sized firms to arrive at these conclusions.
Only a fifth of the corporates surveyed indicated they plan greenfield expansion over the next 12 months. Overall, firms expect to increase capex by nine per cent during the year, lower than the levels seen in FY11 and FY12.
Productivity enhancement
Of the planned spending, over half will be on productivity enhancement measures and brownfield expansion, while 20-30 per cent of expenditure is earmarked for greenfield projects. Financial firms, in particular, will spend heavily to set up more branches and infrastructure, followed by metal producers (23 per cent), energy & materials miners and the industrials & utilities sector (22 per cent).
The primary reason cited by businesses as a hindrance to their capex plans is high fuel prices.
Availability of infrastructure was another key impediment to capex spending, according to the survey.
Capital availability
One of the interesting findings of the survey was that capital availability was cited as the primary driver of spending plans.
In the previous surveys conducted by Alphawise, cost of capital was picked as the most important factor.
In this regard, it was noted by the survey that Indian corporates largely prefer to utilise profits for capital expenditure. But with profits below corporate expectations in FY12, the reliance on bank credit has increased. Hiring activity is likely to only witness marginal growth in FY13 vis-à-vis the previous year.
The survey suggests that net employee addition would be five per cent in 2012-13, just one percentage point higher than in FY12, with financial services firms looking at the maximum recruitment.
Salary growth
Salary growth is also likely to remain similar to FY12, with some decelaration in large businesses and acceleration in mid-sized companies.
In FY13, salaries are expected to grow by 9.3 per cent year-on-year, slightly higher than the rise of nine per cent year-on-year in 2011-12.
The consumer, healthcare, industrials and utilities sectors are likely to see lower salary growth than the financials, commodities and metals sectors, according to the study.
>arvind.jayaram@thehindu.co.in
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