The Indian economy is at the cusp of a new private corporate capex cycle, an analysis of publicly available data by the India Ratings and Research (Ind-Ra) suggests. Ind-Ra looked at the industrial entrepreneur’s memorandum (IEM) and Business Expectation Index (BEI) data of 2005 to 2022 to arrive at this conclusion.

While the data relating to IEMs is collected by the Department for Promotion of Industry and Internal Trade, the data related to BEI is put out by the Reserve Bank of India (RBI) in its industrial outlook survey of Indian corporates.

The pick-up in private corporate capex is also evident from a recent RBI study on project finance lending, Ind-Ra says. The RBI study indicates that capex sanctions could lead to a decadal-high capex spend in FY24. While there is a steady uptick in project sanctions across all ticket sizes, there could be a significant push from large (over ₹1,000 crore ticket size) projects in this cycle. Besides Uttar Pradesh, Gujarat and Maharashtra which continue to dominate fresh capex sanctions, Odisha is coming up with projects across textile, steel and power sector, the RBI study observes.

Ind-Ra said that while India’s push for roads and renewable energy will continue to dominate the country’s investment cycle, recent expansions announced in a diverse range of industries, including railways and electronics, suggest a more ambitious shift away from modular capex. “Crude oil, base metals, power and telecom continue to dominate the capex activity, and broad basing is visible with increase in capex activity across cement, chemicals, healthcare and logistics. Textile saw significantly higher investments during FY23, but FY24 activity could remain tepid,” Ind-Ra analysis points out.

It also suggests a correlation between IEMs and BEI data. “Except 2009 which was impacted by the global financial crisis, the value of BEI during 2008 and 2011 remained higher than 120, indicating higher business confidence in the future of the economy. As a result, IEM at ₹17.36 lakh crore peaked in 2010. The BEI remained flat and below 115 during 2013-2020 and so had been IEMs. IEMs fluctuated in the range of ₹3.11 lakh crore to ₹6.79 lakh crore during 2013 to 2020. The situation seems to have changed dramatically during the post Covid-19 recovery period of 2021 and 2022. BEI recovered sharply to 126.2 in 2021 and to the highest level ever of 136.1 in 2022. This also got reflected in IEMs rising to ₹7.71 lakh crore in 2021 from ₹4.15 lakh crore in 2020. IEMs in 2022 however came in at ₹4.24 lakh crore only”, the study says.

Ind-Ra also believes IEM amount in 2022 would have been much higher but for the Russia-Ukraine conflict which started on 24 February 2022. “Due to the war, both global and domestic economic environment deteriorated and many of the investment proposals were put on hold. The fact that despite the Russia-Ukraine conflict, BEI during April-June 2023 was 126.4 suggests that business sentiments are still bullish. Taking a cue from the past, Ind-Ra believes if BEI sustains at 120 or above for few more quarters along with no further deterioration in the global geopolitical situation, then private investment proposals/filing of IEMs could rise significantly, leading to the beginning of a new private capex cycle”, it said.

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