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Capex onus on cash rich PSUs? 
(Thu, 20 Dec Pre-Open) 
Some public sector companies in India are sitting with hoards of cash on their balance sheets. This includes the likes of Oil and Natural Gas Corporation Ltd. (ONGC), Coal India, Bharat Heavy Electricals (BHEL), National Thermal Power Corporation (NTPC), Steel Authority of India (SAIL) and National Mineral Development Corporation (NMDC). The plans to put the funds to use are but nonexistent. Most are twiddling their thumbs and waiting for the external environment to improve. Now the country's leading bankers want these cash rich PSUs to lead the way and kick-start capex investments.

According to the State Bank of India (SBI), Chairman Pratip Chaudhuri, growth has to come in from sectors which are capital intensive like power, fertilizer, steel and metals. Without these companies leading the way it will be difficult for India to progress and develop. Since they have the support of the government they should lead the way.

India's structural story from a medium to long term perspective is still intact. Especially given the resilience of high savings and consumption rates. Thus, the opportunity for investment still exists. India has a large population base that is relatively underpenetrated. Its banking system caters to only half the population and it has extremely favourable demographics. However, the country needs to see more action from the grass root level. Existing projects need to reach full completion and regulations need to be more favourable before the investment cycle turns.

High interest rates, were keeping a number of investors at bay. Firms were converting their rupee liabilities into dollar liabilities as the overseas interest rates were at benign levels. But, they weren't factoring in the cost of hedging in this calculation. But, interest rates in India may soon be taking a turn for the better. In its latest monetary policy review, the Reserve Bank of India (RBI) maintained status quo. However there is an indication that the new calendar year will usher in a rate cut or two. Well, the only way to ensure that growth goes back to the erstwhile 8-9% levels is to encourage productive investment and capital spending.

Whether PSUs or private sector; well funded companies confident of growth prospects must build capacities before competition catches up.

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Jul 20, 2017 03:35 PM