Stable outlook for Indian construction sector in 2012: Fitch
16 Jan 2012
Though the outlook for the Indian construction sector in 2012 will be largely stable, it could be downgraded to negative in the event of a higher-than-expected slowdown in order inflows and lack of equity funding for build-operate-transfer (BOT) / build-own-operate-transfer (BOOT) projects.
A major development in the sector over the last two years has been the entry of engineering, procurement and construction companies into development of BOT / BOOT projects.
Fitch said in a new report 2012 Outlook: Indian Construction Sector it expects the BOT / BOOT portfolio to continue to grow in 2012, which will require companies to invest substantial equity.
However, continuing volatility in stock markets and weakening economic conditions may hamper plans to raise funds.
The ability to raise equity to fund investments in both BOT and BOOT projects will be key to the stability of companies' credit profiles. Alternatively, funding of such investments through debt at the parent level would put pressure on their ratings in the medium term.
Order inflows are expected to slowdown in 2012, resulting in order book remaining stagnant in 2012. Order inflows from the industrial sector will probably weaken as corporate sector capex plans are deferred amid slowing GDP growth.