Corporate investment announcements in the first quarter of FY25 declined to a 20-year low level at ₹44,300 core, according to Bank of Baroda’s economic research department (ERD).
Given the fact that the economy has been growing at a steady pace, the only reason that can be attributed to the sluggish intentions can be the Elections, the ERD said in a report.
The previous lowest level of corporate investment announcements was in June 2005.
“Industry has been probably in a wait and watch mode before taking any investment decision. This however, has not been the trend in the past when Elections were held,” per the report.
For Q1-FY15, investments were for ₹2.9 lakh crore and ₹2.1 lakh crore for Q1-FY20.
Hence, while June does tend to have lower investment announcements as they normally peak in March, which is the year end, it has been exceptionally low this year, opined the ERD’s economists.
The economists assessed that the exhaustion of plans in the preceding March quarter, where a high of ₹12.35 lakh crore was announced, which was lower to only that of March 2023 when it was ₹16.20 lakh crore, could be another reason for this slowdown.
In the first quarter of FY25, manufacturing has been the dominant sector in the total investment intentions, with share of 46.4 per cent followed almost evenly by electricity (23.5 per cent) and services -- other than financial (22.2 per cent), and construction & real estate (7.9 per cent).
The ERD economists said over the period June 2023 and June 2024, the fall in value of investment announcements was ₹7.4 lakh crore.
“Of this, the major dip was accounted for by the transport services sector at 61 per cent. This decline of ₹4.61 lakh crore was due to the airlines industry as in the past they had announced intentions to buy new aircrafts.
“It may be inferred that this pattern would be observed in the coming quarters too as these plans are unlikely to be restored until the earlier orders are executed fully,” the report said.
Another 20 per cent of the decline of the order of around ₹1.5 lakh crore was in the electricity sector. In the past most of the additions have been in the renewable space and here too a slowdown may be expected, the BoB economists said.
Corporate bond issuances
Corporate bond issuances (based on CMIE data) for the first quarter of the year followed trend witnessed in corporate investment announcements, the BoB report said.
Overall issuances had increased from Rs 1.43 lakh crore in Q1-FY23 to ₹2.86 lakh crore in Q1- FY24, but came down sharply to ₹1.73 lakh crore in Q1-FY25.
During the first quarter of the year, 76 per cent of the bond issuances was accounted for by the financial services sector, with power, mining and diversified companies having shares of between 4-5 per cen each .
The BoB economists noted that on the banking front, between March-end and June 2024, incremental credit was ₹2.78 lakh crore as against ₹3.78 lakh crore last year. In terms of growth rate on year-to-date basis, it was 1.7 per cent against 2.5 per cent last year.
“It would need to be seen whether there is any major pick-up in the second quarter considering that the budget will be announced only towards the end of July.
“A good monsoon and steady demand during the festival season which starts from end-August and lasts till December would be the time when investment could increase at a faster pace,” the economists said.