What slowdown? Investment recovery underway: Credit Suisse

Moneycontrol Bureau

Contrary to the belief that capex cycle in India will further weaken in FY14, consultancy firm Credit Suisse is of the opinion that investment is only set to pick up from here, even when the market remains bearish on the same.

There is very little evidence to prove that companies postpone capex programme on the onset of elections, says Credit Suisse’s Robert Prior-Wandesforde in his latest report. While giving instances of how investments grew in anything between 7 percent to 18 percent year-on-year during election years between 1998-2009, he wonders why corporates don’t reveal investments made in election years.

Gross domestic capital formation (GDFC) which includes expenses made by households, entrepreneurs and government and collectively adds to the fixed capital stock of the country, is seen growing 6 percent YoY from  -4.6 percent in the June quarter of 2012, says the report.

Continuous tightening of rates by the Reserve Bank of India has also not significantly impacted investment trends. For instance in the past few years, despite interest rates being on the higher side, investment never declined, the report says.

Wandesforde points out an interesting fact that investment recovery generally begins with small and medium sized companies. This goes unnoticed as most analysts communicate with bigger companies to get an update on capex programmes

Production of capital goods, which is an indicator of growth is also trending higher from mid 2012 levels pushing growth, the report says.

“While the age old relation between capacity utilization and GDP growth holds true, it is equally correct that capacity utilization rises in tandem with stronger capex growth,” says the report

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