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Fortunes change for India's construction sector

For Indian construction firms, 2014 was not a good year. The industry was fairly firmly in decline for much of the period, with growth slowing down and not enough being built. However, positive news is on the horizon as a major credit rating agency has changed its outlook for the sector.

India Ratings and Research (Ind-Ra) has upgraded the Indian construction industry from the rating of 'declining' to that of 'stable'. This is huge news for the sector, with Ind-Ra proclaiming "the worst is over" in a press release. The likelihood is that India's construction sector will see a huge boost in the coming year.

However, the ratings firm's prediction is far from a certainty. There are a number of factors that could change the fortunes of India's construction industry, all of which potential investors will need to look out for.


The current state

According to Ind-Ra, India is set to see economic growth of 6.5 per cent in the next financial year. This will provide the construction industry with the boost it needs to get out of its current state of decline. New projects are expected to increase, as are executions. However, this is not the case for every construction firm.

The ones that are set to benefit the most are the companies that have tied up their funding plans, "either through equity and asset sales or through corporate debt restructuring" according to Ind-Ra. Those that have not chosen this option might find that the recovery is not as strong for them.


Improved cash flow

The construction industry is now in a stable position according to Ind-Ra, but it is still not growing. However, this could change in the next year if more money could be injected into the industry. Improved cash flow would help the industry to expand once again. However, this would depend on two things: order execution and profitability.

Indian construction firms must be prepared to improve the speed and efficiency with which they complete their projects. This could involve investing in new equipment or improving their existing processes. They should also look to make a larger profit on each job by cutting their costs. These are not easy tasks, but carrying them off would be a huge boost to the sector.


Governmental involvement

Of course, Indian construction firms are not fully responsible for the state of the industry. Ind-Ra has warned that the government also needs to take action to avoid seeing the sector slide once more into decline. This is particularly the case in infrastructure construction, which the rest of the industry depends on to provide cash flow.

However, this sector is somewhat dependent on government investment. If not enough funding is allocated to infrastructure projects, it could have a negative impact on the construction industry overall. Ind-Ra warned that if the government cannot manage to take action in this area, the construction industry's industry may be revised back to 'negative'.

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