FREE

MOSL: CAPITAL GOODS-Weak start to FY19- New project announcements decline for the eighth straight quarter

CAPITAL GOODS: Weak start to FY19; New project announcements decline for the eighth straight quarter

In this note, we highlight the key takeaways from the projects data released by the Centre for Monitoring Indian Economy (CMIE). CMIE tracks projects across various stages of announcement, implementation and completion, and takes into account stalled/shelved projects. We use this data as a proxy for India’s capex cycle.

New project announcements decline for the eighth straight quarter

• New project announcements stood at INR2.1t in 1QFY19, implying a dip of 22% YoY. This includes a large order of INR1.3t for the purchase of a Boeing aircraft in the transport service segment, excluding which new project announcements stood at INR736b (-72% YoY). Private sector projects registered 24% YoY growth to INR1.8t, supported by the Boeing aircraft project, accounting for 88% of the total new projects. Government projects declined 79% YoY to INR244b (the lowest since FY05). Within government projects, the central government projects contributed 57% and the balance was contributed by the state and local governments. A sectoral analysis of proposals in 1QFY19 indicates a steep decline in segments such as manufacturing (-54% YoY; INR256b), metals and metals products (-87% YoY; INR31b) and transport equipment (-91% YoY; INR7.3b).

 Project completions drop 21% YoY to INR685b in 1QFY19

• In 1QFY19, project completions declined 21% YoY to INR685b – much lower than the average quarterly run-rate of INR1.4t for the last three years and the lowest in three years. Project completions have been trending downward for the last six quarters, post structural reforms like demonetization and GST (renegotiation of contracts). Project completion has been severely impacted in sectors like electricity (-65% YoY, INR89b), construction and real estate (-77% YoY, INR27b) and transport service (-33%, INR182b).