India has seen two phases of capex cycle in the last 3 decades. First, after liberalization in the 1990s and second during 2003-08. After 2010, while government-backed infra capex continued, private sector industrial capex lagged behind. Now, with the focus on domestic manufacturing, is there a possibility of a full-fledged capex festival? Four charts can provide signals.
capex bonanza
New investment announcements had reached an all-time high of Rs 19600 billion in FY22 and are already at Rs 15000 billion for 9MFY23. Performance has been sluggish so far, but the pick-up in non-food credit growth from 1.8% to 8.9% during 9mFY23 indicates a pick-up in performance in the coming years.
impact of production concessions
The Government of India (GOI) has increased and accelerated its emphasis on localization through the announcement of Production Linked Incentive Scheme (PLI). The move is aimed at increasing domestic production and reducing imports of key items.
constant attention
Government capital expenditure grew by ~25% from FY19 to FY23E, mainly driven by roads, railways and defence. Capex expected to continue for Railways (new lines, signaling and telecommunications, modernisation, Vande Bharat train sets, dedicated freight corridors etc), Defense (product localisation, procurement from private players), and Water (through Jal Jeevan Mission) Is. With the increasing focus on clean energy and decarbonisation, the government is likely to continue capex on renewable energy. With a view to further increase localisation, the government may add more sectors under the PLI scheme, thereby boosting industrial/private capex and import substitution.
leaders and laggards
Chemicals and power have seen healthy growth while real estate, metals and airlines have seen a decline in capex. Some notable capital goods MNCs like Timken, Siemens, Ingersoll Rand, DISA India, Alantus Beck etc. have prepared capex for export and domestic markets, indicating their growing confidence in the revival of manufacturing capex in India.
