04 Jun 12 India Inc. – Dream On?
The investment outlook of corporate India seems to be still upbeat in comparison to the retail segment, which has been consistently declining. After touching an all time high of 160 in September 2010, the retail investment confidence index fell gradually to 132 by December 2011. Despite sluggish domestic economic reforms, political paralysis and an increasingly ominous Euro zone crisis, corporate India’s investment confidence recovered slightly.
The Investment Confidence Index (ICI) survey, conducted by JP Morgan Asset Management and ValueNotes, showed signs of recovery in the corporate segment. Corporate ICI touched its lowest value (109) in July 2011 as the Indian economy grappled with a serial public graft, dull infrastructure development and diminishing foreign investment. The decline of investment confidence began (see graph) in the latter half of 2010 when the Euro zone situation deteriorated whilst the world economy was still recovering from the financial crisis of 2008.
Though the overall economic picture is still gloomy, there are some signs of revival, like slowing inflation and a reduction of the repo rate by 50 basis points by the RBI for the first time in three years. An improvement in the Indian economic situation – a component of the Corporate Confidence Index – saw the biggest jump (26 points) in December 2011 after falling to its lowest in July 2011 (104). Another interesting finding of the survey is that companies are bullish on making capital investments. The recent cut in short-term lending rates by the RBI is expected to bring down borrowing costs and stimulate capital spending.
Corporate Confidence Index and its components
Source: J.P. Morgan Asset Management – ValueNotes Investment Confidence Survey, Wave IX
Will the great Indian corporate dream stay alive in 2012? Positive Index of Industrial Production (IIP) numbers in January and February 2012 had brought back revival hopes, but a fall in March 2012 has raised doubts again. Moreover, policy paralysis, coupled with a weak rupee has made foreign investors sceptical about increasing investments in India. Thus it remains to be seen whether India Inc. will be able to sustain its confidence much longer.