Investment revival to take a few quarters: India Inc

Tags: News
The central bank’s decision to reduce the statutory liquidity ratio (SLR) by 50 basis points will infuse around Rs 40,000 crore surplus liquidity in the system, which India Inc believes will keep liquidity buoyant, help meet industry’s short-term debt requirements and move stalled projects.

However, industry leaders said the revival in investment cycle might take a couple of quarters.

Prabal Banerjee, president for international finance at Essar Group, said the surplus liquidity would help companies raise funds for growth and expansion-related purposes, especially in the infrastructure and manufacturing sectors.

“There was no negativity in the monetary policy and the decision to hold the repo and reverse repo rates is an extremely good step, as inflation has started to decline and there are visible signs of economic recovery. Cutting rates at this juncture would have had an adverse impact on controlling CPI inflation,” Banerjee said.

He said it would be advisable not to expect rate cuts before the end of this financial year in view of the tight fiscal situation.

Industry body Ficci said the RBI decision re-affirmed its belief that the economy was on the mend. “The emerging green shoots need to be nurtured and we are confident that both the government and the central bank will continue to move in that direction. The SLR cut should help augment liquidity in the system. We hope this move would be followed by a downward revision in the cost of capital for the industrial sector,” said Sidharth Birla, president, Ficci.

Industry captains felt although sentiment had turned positive and there were signs of economic recovery with the improvement in manufacturing data and a drop in inflation, the overall recovery in the investment cycle would take a few quarters.

RK Goyal, managing director of Kalyani Steel, said fund availability for companies would definitely improve with the 50 bps cut in SLR, but it would take a couple of quarters before investment cycle revives.

“For the steel sector, the main challenge is non-availability of raw material, like iron ore. Although the government is focusing on these issues, on the ground full-fledged corporate investment will not pick up till mining activities get back to normal and government spending on infrastructure revives,” Goyal said.

“We are holding our expansion plans at the moment and would start it and look at raising funds once raw material linkage is available,” he said.

Sunil Mantri, chairman of Mantri Realty, said the real estate sector had been struggling to raise funds and the SLR cut would hopefully make funds available for the sector. “Both banks and private equity players had sighed away from the industry, but the scenario is changing slowly with the drop in inflation and improvement in GDP.”

Mantri said the company was looking to raise funds to launch new projects but has not yet finalised the details.

Boman R Irani, chairman and managing director of Mumbai based-realty firm Rustomjee, said: “The SLR cut will make more funds available for companies across sectors for capital expenditure. However it would have helped more if the apex bank had cut the rates. It would have translated into more funds in the hands of customers and led to faster economic revival,” Irani said.

Ratings agency Crisil in its review of RBI’s monetary policy said it was likely that RBI would not cut rates in this financial year, as recent data suggested that growth was picking up and inflation was stepping down. “The potential risks to inflation in months ahead, once the base effect vanishes, remain high and thus, we stick to our call of no change in the policy rate this financial year,” Crisil said.

vikassrivastav@mydigitalfc.com

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