Economic slowdown, delayed construction projects, muted construction activity, reduction in funds from both the centre and state have impacted the construction equipment (CE) industry poorly. As the overall economic activity remains on the low, investment in infrastructure across sectors is unlikely to pick up in the near terms.
Especially since the COVID-19 induced lockdown, the industry faced a steady decline in revenue as construction sites were forced shut and supply chains were disrupted. Government relief was also limited, as the funds reserved for infrastructural spend were reallocated to the healthcare sector, which worsened the condition of the CE sector furthermore.
Government may also roll back the plans on infrastructure capital expenditure by years due to the increased financial stress. Not to mention, the CE industry relies on the construction and infrastructure industries which are already ridden with operation failures and reduced cash flow. Revival in demand is likely to be slow.
Additional Read: Top Trends in Construction Equipment Finance Market
Demand slowdown
Government and private capital spends have been the primary drivers of demand in the CE industry. But with liquidity strain in the finance market, both CE sales and rental demand faced a sharp fall. Due to the loss of sales and overall economic slowdown, the domestic mining and CE (MCE) sector saw a volume downturn of over 20% in the CY2020.
However, the demand forconstruction equipmentsaw a welcome rise in the rural sectors, in the month of June; mainly driven by irrigation, agriculture, mulching, and canal clearing activities. But the demand was only a temporary, short-lived relief. To revive the demand for CE, both central and state governments are in talks to reopen the highway construction projects and restart the construction activity on a full scale.
Nonetheless, the CE industryis expected to degrow by 15-20% in CY 2020 states ICRA. If the construction and infrastructure sectors continue to face an economic slump, the CE industry will only follow suit.
Loss of buyer confidence
Given the current market scenario, construction finance will witness an increase in the credit risks. This will inevitably cause finance disruptions as borrowers lose out on additional funds due to lack of adequate cash flow and fail to procure the desired equipment.
Most financiers have shifted focus to debt collection instead, especially since RBI first announced the loan moratorium on March 27. Now, with an increase in bank credit to the sector, CE dealers may find it difficult to secure appropriate funds to keep the sales optimum.
Additional Read: Construction Equipment Leasing Vs Financing- Which One Suits Your Business
The bottom line
As uncertainty around COVID-19 continues, any conclusive forecasts on the condition of the construction financemarket will be of no avail. To resume operations in the CE industry, accessible CE finance will play a crucial role to drive the demand for CE but recovery will be slow. A full revival in demand is only possible once the coronavirus is contained indefinitely.
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