Q1, FY2024-25: Corporate investments hit 20-year low

Investment announcements for the first quarter of the fiscal year 2024–25 have plunged to a 20-year low, totalling just Rs 44,300 crore. This stark decline marks the lowest level since June 2005, despite the economy's apparently steady growth trajectory.

In their latest report on corporate investments, analysts from the Bank of Baroda attribute this sluggishness primarily to the looming elections, which put industries in a cautious 'wait-and-watch' mode instead of committing to major investments until the results were declared.

This trend contrasts sharply with previous election years, however. For instance, Q1 of FY 2014–15 saw investments amounting to Rs 2.9 lakh crore and Q1 of FY 2019–20 saw Rs 2.1 lakh crore.

The manufacturing sector has dominated the investment landscape this time, accounting for 46.4 per cent of the total announcements, closely followed by electricity and services. However, the period between June 2023 and June 2024 still witnessed a staggering decline in investment value, plummeting by Rs 7.4 lakh crore.

The transport services sector alone experienced a significant dip of 61 per cent, amounting to a decline of Rs 4.61 lakh crore, largely attributed to deferred plans within the airlines industry, especially regarding aircraft acquisitions.

Another notable setback occurred in the electricity sector, which saw a 20 per cent decline amounting to approximately Rs 1.5 lakh crore. This sector, known for its recent focus on renewable energy, may continue to face subdued investment until existing projects materialise fully.

Financial indicators also reflect a cautious approach. Corporate bonds issued in Q1 of FY2024–25 also showed a sharp decline to Rs 1.73 lakh crore, versus Rs 2.86 lakh crore in the previous year, with the financial services sector accounting for a substantial 76 per cent of the total issuances.

Incremental credit growth in banking, measured up to mid-June 2024, further underscored the slowdown, growing at a modest 1.7 per cent year-to-date, compared to 2.5 per cent in the previous year.

Looking ahead, analysts are keen to see whether the upcoming budget announcement in late July stimulates a resurgence in investment in the Q2.

Factors such as a promising monsoon and robust festive season demand from August to December could also potentially revive the investment momentum.