With bank credit to the commercial sector growing at just 7% between April and January, and that too on a low base of 9% reported in the corresponding period of 2011-12, it’s evident corporate India is not in the mood to invest. In fact, any banker would tell you that even the little that’s being lent is mostly for working capital or for projects that were firmed up before 2012. Whether it’s due to a lack of confidence or clearances, companies aren’t really looking to expand their operations just yet. Some of this is reflected in order books at capital goods firms; while BHEL’s order backlog shrank 7% sequentially in the three months to December and 22% yoy, order flows at Siemens fell 31% yoy in the same period. In fact, the poor offtake of trucks—volumes of M&HCVs at Tata Motors fell a steep 12% sequentially in January—suggests a lull in manufacturing, a sure sign of a stagnating economy. RBI estimates capacity utilisation in the economy at 73-74% and that’s not hard to believe because corporate India’s financial results for the December quarter reveal that companies have little pricing power and aren’t able to push through volumes either. The short point is that top line is hard to come by whether for a Hindustan Unilever, a Bajaj Auto or an UltraTech Cement—net sales grew just 12.6% yoy for a sample of 749 companies, the slowest in several quarters.
Clearly, consumer confidence will be restored once the capex cycle turns, helping create more jobs and driving up incomes. But that seems some time away; CMIE data shows that new project starts in the three months to December 2012 continued to be weak, falling 8% qoq and 74% yoy. That doesn’t suggest a rash of projects any time soon, which means the country’s industrial output might remain anaemic for longer than anticipated; economists have been suggesting that industrial output, which rose 1.3% between April and October and contracted 0.1% yoy in November, might be bottoming out. This, despite the capital goods index—data for which is considered somewhat unreliable—contracting 7.7% yoy in November, taking the three-month moving average to a negative 4.4%. However, if demand isn’t picking up, there’s little reason for companies to add to capacity. Sales of both commercial and passenger vehicles have been unexpectedly subdued in January and channel checks by analysts reveal that the sales may be the result of