March 29, 2023
The Capex saw a 16% growth in FY22
Indian banks have addressed their non-performing loans and improved their credit costs over the years
India is a net importer of energy and exports 21% of its output
The secular nature of most Capex drivers should help to mitigate these risks over the medium term
The increasing capital expenditure (Capex) trend among Indian corporates is anticipated to continue and rise at a rate of 10%-12% per annum in the upcoming fiscal year until March 2024, according to a report by Fitch Ratings.
The report noted that Capex remained stagnant between FY19 and FY21, but saw a 16% growth in FY22. The predictions are applicable to the eight state-owned enterprises and twenty-one privately held Fitch-rated corporates in India.
Experts stated that the growth opportunities emerging from India’s recent supply-side policies, localisation efforts by domestic corporates, and the desire by multinational corporations to lower their risks in global supply chains may attract more significant private investments in the medium term. Nevertheless, they cautioned that slower-than-expected progress could pose risks.
Government reforms, such as the Goods and Services Tax (GST), bankruptcy code, and more recent initiatives like a lower corporate tax rate, the Production Linked Incentive (PLI) schemes, and rising state expenditure on infrastructure, could further encourage investments. On top of that, Indian banks have addressed their non-performing loans and improved their credit costs over the years, positioning themselves to support corporate funding requirements.
The report also pointed out that India’s investment demand could be at risk due to currency pressures caused by high commodity prices and a weak global economic outlook. India is a net importer of energy and exports 21% of its output, which adds to these risks.
Furthermore, inflationary pressures and rising interest rates could also temper the Capex outlook for corporations with a smaller scale and/or weak financial profile. Nevertheless, the secular nature of most Capex drivers should help to mitigate these risks over the medium term.