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Market roundup | Services sector attracts large chunk of FPI inflows

LiveMint logoLiveMint 30-03-2017 Livemint

The services sector remains the preferred bet for foreign portfolio investors (FPIs). Stocks from services industries—banks, financial services, software—constituted almost one-third of their assets as of 15 February, shows an analysis by CARE Ratings. “Infrastructure stocks also do have a share of almost 10% while the rest is evenly spread out,” adds CARE Ratings. The equity segment is estimated to have seen an investment of about $7 billion from FPIs till 26 March this fiscal year. Debt instruments, on the other hand, have seen an outflow of almost $2.2 billion, against a withdrawal of $500 million in the year-ago period.

Rising costs can push up fertilizer subsidy bill

The recent increase in gas prices can push up urea production cost and fertilizer subsidy levels in the coming fiscal year, according to Icra Ltd. Urea prices are regulated by the government. They are priced below the production cost with the government making up for the price difference through subsidy. According to K. Ravichandran, senior vice-president and group head (corporate ratings) at Icra, rising input costs will not only increase the government’s subsidy bill but will also raise working capital of the producers as payments usually see delays. “While the subsidy backlog at the end of FY2017 is expected to decline to Rs300-320 billion, allocation remaining unchanged at Rs700 billion for FY2018, coupled with rising gas costs and firming global fertilizer prices, should result in higher subsidy backlog at the end of FY2018,” adds Ravichandran.

Project completion falls to 9-quarter low in Q3FY17

While announcements of new projects rose in the December quarter, project completion still lags. Announcement of new projects surged to Rs1.4 trillion in Q3 FY17 from Rs1.2 trillion in Q3 FY16, said a report by rating agency Icra Ltd, citing Centre for Monitoring Indian Economy data. These new projects were concentrated in sectors such as transport, metal and metal products, and construction and real estate.

Naveen Kumar Saini/Mint

On the other hand, in the same period, project completion fell to a nine-quarter low of Rs80,000 crore in Q3 FY17 from Rs90,000 crore in Q3 FY16. This slump was primarily led by the private sector, the report added. According to Icra, the private sector is likely to embark upon capacity expansion only after a successful transition to the new goods and services tax regime and after capacity utilization rises to healthier levels.

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