Chennai: The delay in project commissioning due to the election saw a transient lull in the investment activity in Q1 FY25. Recovery is expected in the current quarter.
In new project announcements and project completions, Q1 FY2025 saw a multi-year low as well as a deterioration in a majority of investment-related indicators compared to Q4 FY2024. The performance of seven of the 11 indicators moderated in Q1 FY2025, relative to Q4 FY2024, owing to the impact of general elections on construction activity. These include the Centre’s capex, capital outlay and net lending of 24 states, M&HCV truck registrations, exports of engineering goods, infrastructure credit, and output of cement and capital goods. Notably, all the indicators, barring finished steel consumption, reported single-digit growth in this period, said ICRA.
Further, housing activity slowed in Q1 FY2025 as the area sold in the top seven cities fell by 14.6 per cent QoQ to 168.2 msf in Q1 FY2025, partly owing to seasonality. On a YoY basis, the growth decelerated to a 15-quarter low of 6.7 per cent from double digits in each of the last 13 quarters.
New project announcements plunged from the four-quarter high of Rs. 12.6 trillion in Q4 FY2024 to just Rs. 1.1 trillion in Q1 FY2025, which was the lowest cost in the last two decades. Government and private sector announcements dipped to Rs. 0.4 trillion and Rs. 0.7 trillion, respectively, in Q1 FY2025, sliding to the lowest levels in nearly 6.5 and 3.5 years, respectively.
Project completions too were exceptionally low at Rs. 0.42 trillion in Q1 FY2025, the lowest level since Q2 FY2008, barring the Covid-affected quarters.
Meanwhile, the value of overall tenders of over Rs 2.5 billion floated across all divisions in the construction space declined 58 per cent in Q1 FY25 to Rs 1,413 billion, said India Ratings. “The unexecuted order books of several entities are at their lowest in the past three years, especially for players operating in the roadways segment. We expect tender awards could see significant upward momentum starting Q2 which would result in a build-up of order books by end-Q3 FY25,” said Vijay Babu, Associate Director, Corporate Ratings.
As business returns to normal after the election-related lull in activity in Q1 FY2025, new investment proposals are expected to pick up from the ongoing quarter. Nevertheless, ICRA believes that the private capex cycle is likely to be measured and not exuberant amid the slow recovery in domestic rural demand, sluggish external demand, and the uncertainty stemming from geopolitical risks and elections in some advanced economies.
