Tentative recovery in investment activity in Q2: ICRA | Mint – Mint

However, it said that capacity utilisation is expected to rise in the third quarter led by robust demand for goods during the festive season. It added that a significant step-up in the states’ capex would be crucial to support investment demand and thereby, the GDP growth, given the large fiscal space available with major states.

“Elevated uncertainty owing to the Russia-Ukraine conflict, tightening global financial conditions, expectations of a recession in advanced economies, weakening external demand (as evinced by a decline in non-oil merchandise exports in Q2 FY2023) and concerns around the sustainability of domestic demand post the festive season, are likely to have impacted sentiments and discouraged capex announcements,” said ICRA. Most of the indicators pertaining to investments witnessed a moderation in their year-on-year growth in Jul-Aug 2022 relative to Q1 FY2023 on account of base normalisation, it added.

The value of new project announcements dipped to ₹3.4 trillion in the second quarter of the current fiscal from ₹4.4 trillion in the previous quarter but was in line with the levels seen in Q2 of FY2020 and FY2022 (at ₹3.5 trillion each).

Private sector project announcements declined for the second consecutive quarter in Q2 FY2023, while exceeding the average quarterly levels seen during FY2022.

It pointed out that the sustenance of demand post-festive season will influence the pace of private capex.

“While softer commodity prices augur well for corporate margins, aiding business sentiment and supporting investment demand, the slowdown in external demand, sustainability of domestic demand beyond the festive season and rising borrowing costs are the key risks to remain watchful of, going forward,” it said.