Outlook for Indian construction sector stable in H2 '12: Fitch

The outlook for the Indian construction industry remains stable during the second half of 2012 despite the continued unfavourable macroeconomic environment, as some of the risks have already been factored into the ratings, says atings agency Fitch.

In its 2012 Mid-Year Outlook: Indian Construction Sector, the agency , however, said the medium-term outlook could be affected by ongoing challenges in execution, coupled with high interest rates and lacklustre equity markets.

The report expresses concern 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.

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.