New projects hit Rs 12.3 trillion in March quarter on large orders

Analysts say slowing growth globally may limit future investments

Large investment plans in some sectors might have driven a record surge in new projects in the March quarter of financial year 2022-23 (Q4FY23). The value of new projects soared in the three months ended March 31 to Rs 12.3 trillion, or more than the previous two quarters combined, according to data from capital expenditure (capex) numbers from project tracker Centre for Monitoring Indian Economy (CMIE).

New projects rose 42.6 per cent year-on-year (YoY) from Rs 8.64 trillion in Q4FY22 and 78 per cent over the Q3 figure of Rs 6.9 trillion.

Much of this might have been driven by large orders placed in certain sectors, even as overall private sector capital expenditure plans continued to reflect a more cautious outlook amid slowing economic growth, said analysts. New projects could include government road projects as well as companies setting up factories, or otherwise enhancing capacity to provide goods or services. The latter is said to have driven the surge.

Bank of Baroda’s Chief Economist Madan Sabnavis said the Q4 figure had bettered the previous record of over Rs 10 trillion in 2009, thanks to a Rs 7.5-trillion order in the transport sector. 

Air India announced a $100 billion order for airplanes during the quarter.

“This is an all-time high aided by the transport sector,” he said.

Some of the other sectors that saw large investments were engineering; automobile and ancillary companies related to the growth in the electric vehicle segment; and cement, according to Deepak Jasani, head of retail research at HDFC Securities.

 “Capex from (the) private sector is still not very aggressive...but is better than what it was maybe two-three quarters back,” he said.

Companies typically invest in setting up new production capacity when existing facilities are not able to keep up with demand. At present, a quarter of capacity remains unutilised though there was an improvement in capacity utilisation levels in Q2, according to the Reserve Bank of India’s (RBI’s) Order Books, Inventories and Capacity Utilisation Survey (OBICUS).

“The aggregate level capacity utilisation (CU) for the manufacturing sector improved to 74.0 per cent in Q2 from 72.4 per cent in the previous quarter. The seasonally adjusted CU for Q2 also increased by 20 basis points (bps) to 74.5 per cent from its level in the previous quarter... New orders received by manufacturing companies during Q2 were close to their level in the previous quarters but they were substantially higher than that in the corresponding quarter a year ago,” said the survey, which is released with a lag.

Around Rs 95,000 crore worth of projects were completed in March. This was 28 per cent lower than the previous year, and 44 per cent lower sequentially, showed CMIE data. Stalled project numbers were largely unchanged.

A repeat of the Q4 numbers might be difficult because of slowing growth. The World Bank recently revised the gross domestic product (GDP) growth estimate for FY24 to 6.3 per cent from 6.6 per cent earlier. Slowing growth would naturally impact businesses and their expansion plans, pointed out Sabnavis.