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Growth engines are cranking up, finally.
Data released by the Reserve Bank of India shows that capacity utilisation by domestic companies rose to over 75% in the March quarter, the highest in the past two years.
Experts say this is a clear sign of a pickup in economic activity, and it will have a big positive impact on the profitability of companies.
Demand revival is sure to encourage corporates to dust off their expansion plans, as indicated by the pick-up in bank credit growth.
Higher capacity utilisation also means India Inc getting its pricing power back.
Although the firming up of prices will have a recoil effect on inflation, the impact will be negligible if growth picks up pace.
The Met Department’s forecast of a normal monsoon and the government’s focus on big-ticket infrastructure projects are the other big positives that could push the economy into a highgrowth trajectory.
So are these early signs pointers to a revival in the investment cycle What will be the impact of high input costs on the demand situation Also, will high interest rates spoil the party
On ET NOW’s India Development Debate, economists and banking experts discussed the revival in the capex cycle.
Here are the highlights:
MS UNNIKRISHNANMD CEO, THERMAXWe are almost closer to an investment cycle starting.
How strong it’s going to be is anybody’s guess.
It’s going to be selective going forward.
Despite all the negatives in steel, it will start investing.
Automobile is picking up.
Cement will pick up.
I am expecting oil and gas to pick up.
It’s not going to be all industries moving together.
Core sectors will start investing.
We are not an isolated society.
We are going to take the global and domestic capacity building.
ARUN NANDACHAIRMAN, MAHINDRA LIFESPACE
I would say these are early days.
These are green shoots.
I don’t want to be pessimistic.
There are industries where we have seen significant growth.
RBI has picked figures from 10 large industries.
I request the ministry to consider giving fillip to our ancillary suppliers who have no access to funds.
We are seeing some positives but when election is round the corner people want to wait.
Unless there is a strong push from RBI and government I see problems for MSMEs but not for large corporates.
MYTHILI BHUSNURMATHCONSULTING EDITOR, ET NOW
Corporate earnings haven’t done too badly.
If you look at the microlevel, data corporate earnings have held out quite well but at the macro level we don’t see too many signs of a clear revival.
The economy is recovering but I would be a little hesitant to say we are clearly at the inflection point and from here it’s clearly upwards.
Remember, the IMF has lowered our growth rate from 7.4% to 7.3%.
ANANTH NARAYANMONEY MARKET EXPERT
The last two years haven’t been great.
To say that this is the best that we have seen in the last two years isn’t under a great frame of reference.
There’s a seasonality involved: we do see a spike up in the fourth quarter numbers every year since 2011.
But growth or incipient growth doesn’t necessarily mean things are fine.
Between 2009 and2013 capacity utilisation was consistently above 80% in the last quarter.
As things stand right now while GST is stabilising, formalisation of the economy etc.
is going to give us a fillip.
There are vulnerabilities we cannot deny.
