Larsen & Toubro: RBI data suggests a gloomy capex outlook: Nomura research,

RBI data on corporate capex paints grim outlook for FY13 & beyond
Our India Banks analyst, Vijay Sarathi, highlights a weak trend in
corporate capex as revealed by data from the RBI, in his note entitled
“The Capex Picture Book”, earlier today. As per the RBI data:
 Capex in FY13 is likely to be only 60% of FY12 levels (assuming no
more major sanctions in FY12, in line with feedback from most banks).
 The outlook beyond FY13 seems to be even grimmer as projected
capex spending is likely to decline to just 40% of FY12 levels.
 The situation appears more alarming when we consider that project
sanctions in FY12 were just 33.7% of the level seen in FY11.

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As per Vijay, new corporate capex proposals have dried up over the past
year and we are likely to see corporate loan growth (outside of regular
working capital loans) reduce to a trickle. The current corporate loan
growth appears to be largely feeding off the existing loan sanctions, and
banks are seeing very little fresh appetite for new loans.
L&T order inflows highly correlated with capex data: -ve takeaways
We highlight the relevance of this data for L&T as a declining pipeline of
corporate capex has a significant bearing on L&T’s order inflow outlook.
 We note an historically strong correlation between L&T’s domestic
orders and the sanction as well as disbursement data from RBI (Fig 2-
3).
 We also highlight the correlation between BSE500 corporate capex
and L&T’s order inflows for corresponding segments and note risk for
L&T’s order inflow estimates.
Summary: Overall, we note negative takeaways for the order
environment in the medium-term from the RBI data on bank sanctions
and disbursements. While we note that significant new sanctions over
the next few months could change sentiment positively, our banking
team’s feedback from most banks suggests that currently new project
sanction requests are only few and far between.