India Inc mobilising less,investing lesser

Bankers say there’s very little interest in new projects. “Wherever a substantial commitment or outlay has been made,it is going ahead but there is very little fresh enthusiasm at this point of time. It is a combination of factors. While the cost of funds is one reason,it is more driven by the political and policy uncertainty,” said a senior banker with a leading private sector bank,on capital investment plans of Corporate India.

Bank of Baroda chairman and managing director MD Mallya,who is also the chairman of IBA,had warned of a slowdown in credit growth and said as no new projects are being planned by the industry,it is unlikely that banks will see an uptick in advances in the current quarter as well. Companies have been putting surplus cash in bank FDs rather than pumping in new projects.

“While the high interest rates are having an impact on the new projects and thus investments,I do not see the mergers and acquisitions (M&As) getting affected. There is a lot of activity going on in the inbound deals and they have been driven by growth of the economy and while the Indian market is growing well,it is higher than the global growth rate and that factor remains intact,” said Manoj Dhingra,associate director,transaction advisory services,Ernst & Young.

Srividya CG, Partner and National Leader (valuation services),Grant Thornton India,said,“There have been a significant level of activity in M&A and PE transactions during the first half of 2011. While the M&A deal values have been lower by 7 per cent compared to the same period last year,PE investments have risen by over 70 per cent. During the first half of 2011,the top sectors where M&A has seen the maximum values have been oil & gas,telecom,IT & ITES,shipping and ports and automotive. A notable trend in M&A in 2011 has been the shift from outbound deals to inbound deals. Several inbound deals have happened at premium valuations showing that Indian businesses have become attractive investment opportunities for global corporates.”

Companies are keeping away from the equity route with the primary market witnessing a 50 per cent fall in fund mobilisation. The first half ended with a total mobilisation of Rs 31,500 crore from 41 issues against Rs 62,400 crore in the same period of last year. Though around 85 companies had approached Sebi to mobilise over Rs 65,000 crore by 2010 end,many of them are yet to see the light of the day.

The steep decline in share sales by public sector companies was another reason for the slump in mobilisation. Analysts attribute the general slowdown in project investments and the volatility in the stock market for the fall in fund mobilisation. India Inc’s borrowing for the 2011 first half totalled $ 36.5 billion. This was a 17 per cent decrease from $44.2 billion in the first half of 2010.

“The fall in mobilisation means less investment in the coming quarters,” said an analyst with an investment bank.

This is bad news as it will affect job creation and keep the markets lacklustre. And later demand and consumption pick up,it could lead to high prices again.