India Inc's order book has failed to keep pace with the surge in optimism over the broader economic outlook.
Order inflows during the quarter-ended September declined 31.5 per cent compared to the level a year ago. Companies are still not committing fresh capital expansion.
Those which are planning such expansion are yet to reach the execution stage, when orders would be placed.
"Apart from the inordinate delay by the government in awarding projects, manufacturing continues to lag as companies are not yet committing fresh large capex and many projects are facing hurdles due to problems of land acquisition, mine allocation and environmental clearances," CLSA, a foreign brokerage, said in a report.
New order inflows have been subdued from the power, road and ports sectors due to lack of project awards by the National Highways Authority of India and others.
Orders given by NHAI under build-operate-transfer slowed considerably after a buoyant first quarter.
What is worrying is that the Indian companies, which have significant cash in hand (Rs 250,000 crore or Rs 2,500 billion as of March 2010) spent less on capital expansion.
Though the order inflows were up 11 per cent in the second quarter on a sequential basis, they were largely because of engineering and capital equipment giant L&T, which saw a significant 65 per cent increase.
During the quarter, L&T won a Rs 6,500-crore (Rs 65-billion) power plant order from the Jaiprakash Group, Rs 1,749 crore (Rs 17.49 billion) from SAIL and Bhel, and Rs 1,610 crore (Rs 16.10 billion) from Visa Power for its 1200 Mw power plant.
With crude oil stabilising above $80 a barrel, drilling contracts have also started flowing in. On a quarter-on-quarter basis, order inflows increased for Aban Lloyds and Alstom Projects, but they declined for Bhel, HCC, IVRCL Infra and Punj Lloyd.
Some analysts said the sequential growth ws not a one-off phenomenon and there was room for optimism.
With a large number of projects expected to enter the bidding process in the next quarter, orders for road projects were expected to improve, analysts at Edelweiss Research said.
Domestic boiler, turbine, generator players continued to be hit by foreign competition, primarily Chinese, during the second quarter.
The transmission and distribution space also witnessed subdued orders, given that a large part of FY11 tender awards was skewed towards the second half of the financial year, particularly towards the fourth quarter.
The power sector is one of the biggest growth sectors in India, but the government relies heavily on use of imported equipment.
Developers have placed 35 per cent of the orders of 11th Plan capacity with foreign vendors.
No wonder, order inflows in power sector declined by 20 per cent year-on-year in the July-September quarter.
