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Fitch: India construction sector outlook stable despite slowdown

KUALA LUMPUR (Aug 6): The outlook for the Indian construction sector remains stable for the second half of 2012, despite the continued unfavourable macroeconomic environment, according to Fitch Ratings on Monday.

However, the medium-term outlook could be affected by ongoing challenges in execution, high interest rates and lacklustre equity markets.

The international ratings agency said it is concerned about the construction sector's growing order book position amid slowdown in project execution, as this impacts cash flows and leads to higher working capital requirements.

"Execution delays are generally a result of issues concerning land, fuel-supply shortages and environmental clearance. While the government of India has announced a Project Clearance Board and a monitoring mechanism to speed up project execution, the effectiveness of this system remains to be seen," it said.

"Also, companies are facing delays in raising debt for build-operate-transfer/build-own-operate-transfer (BOT/BOOT) projects, with banks exercising greater due diligence on the project execution capability of construction companies. The ability to raise equity has also weakened with the subdued equity markets."

The outlook for the sector may be revised to positive upon successful execution of the government's infrastructure plans and better availability of funding, Fitch said but added a continued pile-up of orders without matching execution capability and an inability to fund investments in BOT/BOOT projects or working capital requirements could lead to a revision of the outlook to negative.

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