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India's capital expenditure cycle is already robust and sustainable, and private-sector capex is poised to intensify it further, stock broking company PhillipCapital said in a report.
A capital expenditure, or capex, is used to set up long-term physical or fixed assets. "We believe that we are at the beginning of India's capex cycle and that a lot more capex will be implemented from here until FY32," said Phillip Capital. While public capital expenditure is focused on infrastructure spending, the private-capex cycle is focused on decarbonisation, energy transition, and incentives such as PLI. Industrial credit and the capital goods portion of the IIP give confidence that private-sector capex is primed for a pickup. "Capacity utilization across industries is at 76 per cent (Q1FY25) and will inch towards 80 per cent levels when companies start drawing up capex plans," said PhillipCapital. This, PhillipCapital believes core industry capex in sectors such as steel, cement, power and oil and ga has spurred. Among other sectors, capex drivers are railways, defence, EVs, PLIs, and semiconductors. The government's National Infrastructure Pipeline (NIP), which was originally envisaged with a list of projects from 2020 to 2025 of a cumulative value of USD 1.3 trillion is delayed because of the pandemic still 21% of the projects have been completed and 46% are under implementation as per the Economic Survey July 2024. With more emphasis on execution, the NIP is an improved version of traditional planning through Five-Year Plans. The government has been consistent in meeting its capex targets in the last five years. Another positive trend is the increase in state-level capex; it has seen a CAGR of 15.4 per cent in the past five years, rising 78 per cent to Rs 9.4 trillion in 2024-25 from Rs 5.3 trillion in 2021-22. In addition to core capex, PhillipCapital said it is seeing significant new-age private capex in decarbonisation and energy transition, and incentives like PLI-led capex in areas ranging from renewables, pump storage, green hydrogen to EVs to semiconductors, and data centres. Geopolitics is opening more India-based sourcing and export opportunities. India is also on its way to becoming an export hub. "Given geopolitical constraints, India has emerged as one of the favoured nations, as the developed world searches for alternate manufacturing locations. India's strong infrastructure and soft skills in terms of available manpower make it a natural choice. There is ample evidence in the capital goods sector for this." On the downside, however, weaker GDP growth could upset some of the budgetary calculations. Also, more funds may be redirected into welfare programmes, impacting capex allocations. (ANI)
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