E-Paper
Capex plans shelved again as Covid-19 rages on
A Mint analysis of 150 firms in BSE 200 showed that capex by these companies declined 5.31% from a year ago to ₹4.15 lakh crore in FY20.
The pandemic has created a perfect storm for corporate India, which was already pruning its capital expenditure plans to cope with sluggish growth when the coronavirus crisis struck in March.
A Mint analysis of 150 firms in BSE 200 showed that capex by these companies declined 5.31% from a year ago to ₹4.15 lakh crore in FY20. Of this, capital spending by 20 of the 30 members of the BSE’s benchmark Sensex had fallen sharply by 12.3% to ₹2.07 lakh crore in the fiscal. The review excludes banks, financial services and insurance companies as they have a different revenue model.
The widespread disruptions from Covid have added more pressure on capex plans of firms in the first half of fiscal 2021, according to analysts.
“Companies were already under stress even before the outbreak. Consumer demand was hit after goods and services tax (GST) was introduced. Companies, especially those in smaller segments, took some time adjusting to the new taxation regime before making any major investment decision. Overall earnings were impacted with business and consumer demand declining post-GST in the past few years,” said Dhiraj Sachdev, managing partner and chief investment officer, Roha Asset Managers.
The slump in consumer demand had sent the government scrambling to boost investment and consumption through a raft of measures, including a tax cut for corporates in September last year.
“Private sector balance sheet participation in infrastructure and real estate development is largely missing except for a few names which is a key impediment for a large scale pickup in the private capex cycle,” said Vinod Karki, equity-strategist at ICICI Securities.
Private firms tightened the purse strings in FY20 with capex spending by 131 private companies (in BSE 200) down by 9.77% to ₹2.77 lakh crore. Among BSE 200, 19 state-run firms reported a capex of ₹1.39 lakh crore in FY20, a 6.11% year-on-year jump.
Moreover, alternative funding options such as specialized domestic financial institutions to leverage funds and multilateral funding are still small.
