India on the brink of post-Covid capex boom, analysts say

• The long-awaited recovery from the capex cycle could finally be around the corner.
• Analysts say factors such as government growth push, PLI schemes and demand recovery are key green signals for private sector investment spending.
• The capex boom after Covid could be led by: Mukesh Ambanic and Gautam Adaniin various sectors along with other big names such as UltraTech Cement, Bharti Airtel, JSW Steel, Tata Steel and Tata Poweramong other things.

After several false starts over the past decade, India may finally be on the cusp of a “big” Capex cycle recovery, analysts say. The recovery, initially initiated by the government, should finally allow the private sector to catch up.

Analysts are seeing several green signals giving them confidence that the capex cycle recovery is real this time around – this includes debt balance sheets, improved profitability, a rebound in domestic demand and the end of non-performing assets (NPA) bicycle.

“Going forward, better private sector balance sheets, rising capacity utilization, robust demand sentiment, higher capital spending and various government policies are expected to revitalize the capital investment cycle,” according to a report from the Reserve Bank of India.

“The analysis clearly shows that multiple growth engines are starting to fire together, which would provide stability and visibility to capital spending in the economy in FY22-26,” according to a report from HDFC Institutional Research.

The energy and infrastructure sectors have led the previous capex cycle, and according to the latest data, the coming capex cycle could once again be led by these capital-intensive industries.

The post-Covid capex boom could be led by Mukesh Ambani and Gautam Adani, in various sectors, along with other big names including UltraTech Cement, Bharti Airtel, JSW Steel, Tata Steel and Tata Power.

“Steel, cement, textiles, oil and gas, electric cars, solar energy, chemicals, food processing and renewables will drive up investment spending,” said a report by Prabhudas Lilladher, adding that the government’s drive for growth and production-related incentives (PLI) could kickstart a multi-year investment cycle.

While the energy and infrastructure sectors accounted for more than half of total bank-sanctioned project costs in FY22, they are still lower than FY21, the year of the pandemic, when these two industries accounted for more than 70% of total sanctioned costs. on their behalf.

The government’s significant incentive to restart the economy after the Covid lockdown in 2020 was counter-cyclical, according to HDFC. Despite this, analysts predict a CAGR of 8-10% in government investment over the next 3-5 years.

Two schemes – the National Infrastructure Pipeline worth 111 lakh crore, and the PLI scheme worth 2 lakh crore – will be the main drivers of government capital growth, according to a report by Prabhudas Lilladher.

“Private sector capex has lagged government capex during FY20-22, but it will now exceed government spending due to increasing capex in multiple sectors (cement, metals, energy, automotive, chemicals and PLI-led capex),” the report added. Private sector investment spending could reach a CAGR of 16.6%, which is at least 60% higher than government spending.

Unsurprisingly, Reliance Industries and the Adani Group, led by India’s richest men, top the charts when it comes to investment plans from FY22 to FY24.

Overall, HDFC sees an increase in capital expenditures in FY22 in FY22 compared to the previous decade. The investment outlook is also broadly positive for all sectors, with the exception of sectors such as real estate and textiles, which saw higher investment in FY18 and FY16 respectively as a result of a one-off payment from DLF and Welspun’s capex.

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