New investments, announced by India Inc in the first nine months (9M) of FY24, at ₹10.80 lakh crore are still low and not picking up at the desired rate, according to an analysis by Bank of Baroda’s Economic Research Department (ERD).

This is an indication that the industry in general is still in a wait and watch mode, the ERD said in a report.

The investment intentions are biased towards four sectors -- aviation, chemicals, machinery and power.

New investments were at ₹21.89 lakh crore in 9MFY22 and ₹13.22 lakh crore in 9MFY21, per the analysis, which is based on CMIE data.

New investments announced by India Inc in the first nine months of FY24 are at the lowest if 2020 is excluded, which was during the lockdown, the report said. In 9MFY20, these announcements aggregated to ₹5.94 lakh crore.

“The quarterly data shows some pick up in Q3 (October-December) of FY24 at ₹2.15 lakh crore as against ₹1.87 lakh crore in Q2 (July-September). However,...the amount is still very low compared with the earlier 10 quarters. Announcements are only intentions and may not necessarily materialise,” the ERD said.

The ERD assessed that almost 49 per cent of the investment intentions are in the services sector of which transport services contributes to 94 per cent of the total.

“This is mainly in the aviation sector with orders being placed for new aircrafts by some companies. Within manufacturing which has a share of 28 per cent, chemicals and machinery have larger shares of 42 per cent and 19 per cent, respectively.

“The power sector continues to be a driver with share of 21 per cent. Hence, clearly the intentions are biased towards four sectors,” the ERD said, adding the Indian economy appears to be on the road to achieve GDP growth of around 6.6-6.7 per cent for FY24.

Share of govt firms

The ERD noted that the share of government companies in new investment announcements came down to 20.7 per cent from 23.2 per cent in 2022. But in absolute terms there was a fall in both government and private companies, and within private, both Indian and foreign sectors witnessed a decline. “Therefore, there is a still a long way to go for revival of investment. One factor holding back investment could be excess capacity in several sectors.

“RBI data for June shows the average at 73.6 per cent. The other is uncertainty due to the Elections next year as there is a tendency for companies to wait and watch before investing,” the ERD economists said.

The third factor could be high interest rates and the expectation of repo rate cuts next year in the second quarter of the fiscal, they added.

On the funding side too, there is weak evidence of pick up in investment, going by the broad sectors which have raised funds in the corporate bond market (as per CMIE), the ERD’s team said.

Bond market

Funds raised in bond market by all industries in 9MFY24 were at ₹5.21 lakh crore against ₹5.73 lakh crore in 9MFY23.

“Overall (bond) issuances in 2023 are lower than that in 2022. Further, the share of financial services is the highest at 78.3 per cent as against 72.2 per cent last year.

“Another source of funding which is bank credit shows that the growth in credit to large manufacturing is low at 3.6 per cent - which is lowest across all sectors. Also, the share in total credit has come down from around 20 per cent last November to 17 per cent this November,” BoB’s economists said.

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