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Investment cycle revival remains a mirage
Sep 21, 2015

In Modi's regime that was initially loaded with acche din expectations, one of the major premises of turnaround was revival in the investment cycle. We have often suggested that a revival is not an overnight miracle but a slow paced journey that will need reforms and patience. Not many believed us. Well...The numbers are here...And they have a disappointing story to tell.

Contrary to expectations, the capex cycle is not turning around for cash rich PSUs. As per an article in Business Standard, the capex data for 36 PSUs for last 3 years suggests a decline across sectors in 2014-15. As compared to 27.8% YoY growth in capex in 2013-14, the fiscal 2014-15 witnessed a decline of 23.5% YoY. The sampled companies account for around 88% of total capex in 2014-15. These companies represent sectors such as power generation and distribution, refineries, crude oil and natural gas and the rest clubbed under 'others'. As the chart suggests, the decline is broad based. It further suggests that initial optimism was not grounded in reality. It's not just the PSU capex; the dividends have declined as well. And if cash rich PSUs are reflecting this trend, then in the private sector, and in a bad debt ridden banking system, things are unlikely to be much different we believe. Given the surplus capacity and low demand, the wait for an investment revival is likely to take longer. In the meantime, we believe investors should stop speculating on such broader themes and focus on bottom up approach of stock selection.

Data Source: Business Standard; Capitaline;
*Capex by 36 listed PSUs in past 3 years

This Chart Of The Day was published in The 5 Minute WrapUp - This could well be your worst investing mistake...

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