Capex of India Inc likely to increase in H1 of FY25: experts display guarded optimism
As many as 51% of businesses expect capacity utilisation of 75% and more and 71% expect private capex would improve in the first half of the current financial year
It is easily the key indicator of economic optimism that any society eagerly looks forward to. Despite headwinds of muted demand refusing to blow in the opposite direction, several economists The Economic Times has spoken to have expressed guarded optimism that capex in the private sector in the country could go up gradually riding expectations of high growth.
One of the leading chambers of commerce, CII, has said that in Q4 of the last financial year its business confidence index reached a level untouched in 12 quarters. As many as 51% of businesses expect capacity utilisation of 75% and more. Linked to it is the fact that as many as 71% expect private capex would improve in the first half of the current financial year compared with the second half of FY24.
The optimism finds support from another perspective – that of sanctions by banks. India Ratings and Research (Ind-Ra) data show that private investment proposals approved by banks increased to Rs 3 lakh crore in FY24, which was a good Rs 1 lakh crore higher compared to a year earlier.
“Businesses understand that there is not going to be complete peace across the globe,” Sunil Kumar Sinha, principal economist, Ind-Ra told the newspaper adding that the new reality is leading business strategists to prepare plans against the background of crude staying around $100 a barrel.
Chief economic advisor V Anantha Nageswaran observed at a recent event organised by the National Council of Applied Economic Research that India Inc is depleting its surplus which indicates recovery in capital expenditure.
Incidentally, gross fixed capital formation rose by 10.2% in FY24. However, it was substantially triggered by public capital expenditure.
Abheek Barua, chief economist, HDFC Bank feels that “There are certain sectors like cement and steel, which have already invested quite a bit, certain segments of the auto industry, and certain areas of pharmaceuticals and chemicals where they have to run into capacity constraints.”
The GDP of India is projected to grow 6.8% in FY25, the International Monetary Fund has said.
However, all the optimism comes against the sobering backdrop of the paltry 3% rise in private consumption in FY24 – a factor that is certain to weigh down on investment decisions.
“The demand conditions will have to remain much stronger for much longer for capex to pick up,” said Dhiraj Nim, economist, ANZ.
“There is considerable trepidation about what is happening to mass market consumption. I think they will hold back for a while,” said the HDFC Bank economist.
Many experts have referred to a K-shaped recovery in aggregate consumption. While luxury goods have done well, mass-consumed items have displayed lukewarm demand growth.