Indian investors eye Union Budget’s scale of public capex spending, says DBS Bank

Indian investors eye next week Union Budget’s 2017-18 scale of public capex spending. On the other hand, with private sector investments still largely subdued, public spending needs to pick up part of the slack. Weak earnings have limited corporates’ ability to deleverage and hurt their debt-servicing capability, reported DBS Bank in its research note.

Recovery this year might also be hamstrung by the recent demonetisation drive and higher commodity prices that might lift input costs and hurt their bottom-line. In the near-term, business confidence has been hurt by the banknote ban. The Reserve Bank of India’s (RBI) industrial survey for the first quarter of 2017 saw confidence indices slip, with a cautious view on production, order flows and profit margins, they added.

The DBS Bank in its research note mentioned that the last quarter of 2016 manufacturing and service PMIs also declined, latter to a larger extent. The Reserve Bank of India’s survey on listed private sector companies offered a glimmer of hope as aggregate sales growth fell by a smaller extent in the third quarter of 2016 and profit after tax to sales ratio ticked up.

The private bank concluded that the interest coverage ratio has also bottomed at the start of 2016 and has been improving. These, however, might be temporarily under the cloud in the last quarter of 2016 and early 2017 due to the cash crunch and resultant weak demand pushing up inventory levels.