The Indian economy is poised to revive due to renewed demand in the infrastructure sector, according to a Bank of America-Merrill Lynch report.

“Infra projects are witnessing early signs of a revival. Lower order inflow growth during FY12-14, coupled with ongoing execution challenges on the ground, were key issues impacting growth for infra projects so far,” it said.

Signs of revival The report said sales growth of infra companies and government capital expenditure were witnessing early signs of a revival as can be seen from growth for construction companies, construction & mining equipment and the road segments. “We note that execution challenges as well as working capital cycle issues continue to persist, though they aren’t deteriorating further. We expect a gradual pace of capex cycle recovery.”

BofA-ML’s bottom-up analysis said the sector was likely to witness a cumulative order flow of $332 billion over the FY16-18 period, implying a weak growth of 7-12 per cent per annum. We believe that Dedicated Freight Corridor, solar power, metro rail, roads, railways (civil construction) and defence are the key verticals which are likely to drive order flow growth in FY16-18. We estimate 76 per cent of this capex to be implemented by the public sector, funding for which is not a constraint (contrary to the common perception).

Consumption space The report observed that demand for consumption products was also mostly weak. “Our analysis suggests that demand for consumption linked to real estate, such as home cables, lights & fans and air-conditioners are showing signs of fatigue after an initial pick up post-elections. That said, some consumption categories, especially linked to the urban consumers, is registering a sustained recovery as in the passenger vehicles, scooters and paints segments,” it added.

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