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News In Brief Business and Economy

India Inc. To Delay Its Investment Plans

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India Inc. To Delay Its Investment Plans
12 Jul 2022
5 min read

News Synopsis

Many blue-chip corporations have revealed significant capital investment plans in recent months, including Reliance Industries, UltraTech Cement, Grasim Industries, and Divi's Laboratories. While the action is a significant sign of corporates' revived interest in investment activity, more extensive data from the Reserve Bank of India (RBI) indicate that the macro Capex resurgence has yet to gain traction. In fact, with continued global uncertainties, capex investment is still muted, and businesses are instead increasing their cash reserves.

According to data from the RBI, the cash holdings-to-total asset ratio for publicly traded private manufacturing companies increased significantly from 3.6 percent in 2019–20 to 5.1 percent in 2021–22. Debt on firm balance sheets is being reduced through raising cash levels. The main sources of funds used to increase inventories, trade receivables, financial investments, and cash holdings were retained earnings, reduction in fixed assets, and trade payables. This guarantees that ROI (return on investment) won't decline in a hostile climate for many huge corporations.

Since March 2020, stocks rose for almost two years, with the Nifty rising by nearly 100%. However, since November 2021, things have been declining, and returns are now returning to normal. Additionally, the stock market entered a bear market in the past six months, with the Nifty 50 declining 10%. (but flat on a yearly basis).

The Nifty 50 is being supported by domestic retail flows at a time when most global indices are declining. The possibility that corporate India is growing more savvy when it comes to genuine investments is also a fact. The recent global macro climate is causing corporates to be more cautious, even though statements were made before the bull market's top. The private sector's capital expenditure plans are currently being put on hold but might be beneficial in the prevailing situation.

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