Project stalling rate eases to 12-year low; sharper decline for pvt sector

In an indication of a better investment situation, the rate at which private projects are getting stalled has fallen to its lowest levels in over a decade.

 

This comes amid a renewed focus on the investment cycle with the Reserve Bank of India noting in its October 21 bulletin: “the time for private investment is now; delay risks loss of competitiveness.” 

Around 4.61 per cent of outstanding projects were stalled, according to the September-quarter numbers from the Centre for Monitoring Indian Economy (CMIE). It had touched a peak of 10.53 per cent in March 2020. It has since been in steady decline and fell below 5 per cent in 2024. A combination of a decline in the value of stalled projects, combined with a significant increase in the value of outstanding projects, has caused the overall stalling rate to come down. It was 6.72 per cent in September 2019, before the pandemic came.   

   

The value of stalled projects was Rs 14.7 trillion in September 2019. This fell to Rs 13.2 trillion as of September 2024. The base of outstanding projects has risen faster to Rs 287 trillion as of September 2024 as against Rs 218 trillion as of September 2019.

 

The stalling rate for government projects has typically been lower than that for private projects. But the gap between the two narrowed in recent years. Private-sector stalling rates have roughly halved from 2019 levels. For government projects too, stalling has declined though slower than in the case of the private sector.  

 

The proportion of outstanding government projects is up around 8 per cent from 2019 levels. There has been faster growth in private outstanding projects, which are up 73 per cent during this time.

 

Private-sector capex may face headwinds from a growth slowdown, suggested independent market expert Ambareesh Baliga.

 

Sectors such as engineering, defence, and railways may be among those that do well once the cycle shows a definite uptick, according to him.  

 

“I see it happening possibly in mid-2025,” he said.  

 

Capital-goods companies had seen their stock prices run up ahead of a turn in the investment cycle, noted Dhiraj Sachdev, chief investment officer, Roha Venture, an asset manager. He is of the view that capex is in better shape than before, driven by government initiatives such as the production-linked incentive (PLI) scheme. But the fundamentals for companies benefiting from big investment have been showing a disconnect with their valuations.

 

“Earnings have to catch up,” he said.

 

Manufacturing companies have seen an improvement in stalling rates. The overall stalling rate has fallen to 4.84 per cent for the segment as a whole compared to 8.41 per cent seen earlier. Within manufacturing, metals and metal products have seen stalling rates decline. Key job-creating sectors like textiles as well as construction and real estate have seen a marginal increase in their stalling rate.

 

There is a decline in the stalling rate for electricity projects as well as information technology from the services sector.

 

The Reserve Bank of India (RBI) Order Books, Inventories and Capacity Utilisation Survey tracks capacity utilisation at manufacturing companies. It is released with a lag, the latest numbers being for the June quarter.  

 

“At the aggregate level, capacity utilisation (CU) in the manufacturing sector recorded a seasonal decline to 74.0 per cent in Q1:2024-25 from 76.8 per cent in the previous quarter. The seasonally adjusted CU (CU-SA) increased by 120 basis points over this period to 75.8 per cent,” it said.