The engineering sector is living on the hope that the early progress seen in 2015 will improve in the current year. Project awards have picked up but execution is awaited. Also awaited is real progress on the government’s Make In India programme. Meanwhile, a volatile overseas environment may continue to be a source of concern for the sector.
TRENDS TO WATCH
Revival in orders
There has been some progress in new projects being awarded in the construction and infrastructure sectors, but analysts say that 2016 will be the real test. “Watch out for execution. Order books run the risk of losing the orders too,” said an analyst who looks at the capital goods sector. Orders have picked up in the power, infrastructure and irrigation sectors.
This mode of urban transport has become a status symbol of state governments, so expect more talk and work on this in 2016. Reports on metro projects mention cities such as Indore, Bhopal, Kanpur, Agra, Varanasi, Meerut, Guwahati, Visakhapatnam, Ludhiana, Chandigarh, Patna and Kozhikode. Could this enlarge order books in 2016?
Large companies have been talking about new orders and new product development on the one hand and cost cuts on the other. Expect most of the companies to streamline businesses while focusing on the most crucial operations that hold the best promise for higher revenue. Also watch out for interest rate reductions, which could help ease the debt burden for some of these firms.
Make in India
How will this much-touted programme play out in 2016? Analysts say that 2016 will make it clear whether companies are taking the bait and actually considering investments in manufacturing. Many large companies have announced their intent, but have done little more than that. Some reports suggest that the government is likely to set up a fund to strengthen the capital goods industry, which is the base industry to facilitate manufacturing.
Renewal of power generation
Would 2016 mark a revival in the power generation sector? Will the power distribution companies be able to come out of their financial mess and, thereon, put the entire industry back on a growth path? This year would see how successful the government’s UDAY scheme has been in mitigating the losses that the distribution companies have accumulated over the years. Clarity on this count will give the investors in power generation some renewed confidence.
COMPANIES AND PEOPLE TO WATCH
Larsen and Toubro
The engineering firm’s construction arm has won orders worth Rs.1,960 crore across businesses, which, according to analysts, is a robust figure. Some interpret this as a sign of a pickup in infrastructure spending. However, a majority of the orders are for water and effluent treatment businesses. Will orders also pick up in other sectors such as infrastructure? And will domestic orders provide a buffer to dwindling overseas orders?
Tentative growth returned to Cummins India’s earnings in 2015, but the company is not calling it a revival yet. Earnings of the company have grown, but exports have suffered. “We are seeing gradual improvements in our domestic market as compared to a year ago, but the growth is not robust yet,” Anant J. Talaulicar, chairman and managing director of Cummins India, was cited as having said in a press release. Look out for the company to strengthen its focus on market share and cost efficiency in 2016.
Look out for the company’s attempts to enter new product development aimed at breaking into the segments that are promising globally. Chairman and managing director B.N. Kalyani has stated that global weakness will be partly offset by positive automotive demand and a ramp-up of the passenger vehicle business. To address this, the company is “putting enormous focus on new product development and intensifying the customer acquisition process, both in India and globally”, Kalyani said.
Watch out for a flurry of orders in the roads and expressways sector. The government has set a deadline of 400 days to complete the Eastern and Western Peripheral Expressways, which aim to decongest traffic in the national capital, according to reports citing the Union road transport and highways minister. “The government is committed to decongest Delhi. We have set an ambitious target. This is to complete the Eastern and Western Peripheral Expressways in 400 days,” Gadkari has been quoted as saying. Also, watch out also for traffic de-bottlenecking and pollution control measures from Gadkari in 2016.
The minister of state with independent charge for power, coal, new and renewable energy will be in the limelight for some of the government’s most crucial policy measures. Watch out for facilitating measures in the renewables sector and a flurry of investments to be announced by business houses in 2016.
This article was first published on Livemint.com