FREE

MOSL: Fuel Or Engines (ECONOMY) - What drove higher real investments in FY18? More likely to have been households than listed corporate sector

FUEL OR ENGINES (ECONOMY): What drove higher real investments in FY18? More likely to have been households than listed corporate sector

 

According to official data, real investments grew ~12% YoY in 3QFY18, the highest growth in any single quarter since the new series began in FY12. Consequently, investments grew 6.7% YoY in the first three quarters of FY18, notwithstanding slower growth in government (center + states) investments. It implies that non-fiscal investments have grown faster in FY18. In this note, we attempt to find out if higher investments are supported by higher household investments or higher corporate investments. This is important, because the latter account for >40% of total investments in the economy and are, by far, the most productive investments. In our April Fuel or Engines (FoE), we had confirmed that employment and investments in India’s organized manufacturing sector are highly positively correlated with the profit share. We use a similar framework on the listed corporate sector (common sample of 1,035 companies) to understand the correlation between profit share and investments. There are three key findings: (1) like in the organized manufacturing sector, investment by the listed corporate sector is highly positively correlated with the portion of GVA accruing to the entrepreneur (as profits); (2) although profit share picked up in FY16/FY17 from its multi-year low in FY14/FY15, it appears to have declined again in FY18; and (3) while total investments by the non-government sector have grown at the fastest pace in three years in FY18, declining profit share indicates larger contribution of households, rather than by the listed corporate sector. Higher total investments growth, thus, doesn’t necessarily imply strong corporate investments.