India’s long-awaited capex cycle seems to be gathering momentum after a hiatus of 10 years. An analysis done by HDFC Securities highlighted that multiple growth engines would lend stability and visibility to capital outlay in the economy over FY22-26.
While to an extent the government capex growth would remain a function of tax collections, analysts believe private sector capex is on a cusp of pick-up, aided by factors such as deleveraged corporate balance sheets and healthy profitability, a well-capitalised banking system with NPA cycle over and rising domestic demand, among others.
To play the multi-year theme in the domestic equity market, HDFC Securities suggested ICICI Bank and Axis Bank from the financial space, Larsen & Toubro, Siemens, Cummins and GR Infra from capital goods or infrastructure space. It also sees capacity expansion-led volume growth in UltraTech Cement, Dalmia Bharat, Navin Fluorine, Aarti Industries, NTPC, Phoenix Mills and Havells India.
Another brokerage Prabhudas Lilladher in a report said, “We believe India is on the verge of a big capex cycle recovery which will play out in coming few years. Despite big spending from the government of India, we have not seen a typical industrial-led capex cycle and the 2003-08 cycle was led by power and infra.”
The brokerage further added that the government has been undertaking huge capex plans even as private sector capex is showing signs of revival.
In the year FY2022, capex done by the Centre stood at Rs 8.1 lakh crore. On the other hand, the figure for PSUs, state and private sector came at Rs 1.6 lakh crore, 5.4 lakh crore and Rs 3.8 lakh crore, respectively. HDFC Securities further highlighted that there are expectations that capex by the Centre is likely to be at Rs 8.6 lakh crore in FY23, while PSUs, state and private companies will do a capex of Rs 2 lakh crore, 6.1 lakh crore and 4.3 lakh crore, respectively.
“The sharp pick-up in government capex during FY20-22 has been countercyclical and while growth rates will taper down a bit due to base effect, it still looks set for around 8-10 per cent CAGR over the next 3-5 years, purely based on projects/schemes already under implementation. If tax collections remain buoyant, government capex can overshoot our estimates. Private sector capex has lagged government capex during FY20-22 but it will now outpace public spending due to increasing capex across multiple sectors (cement, metals, power, autos, chemicals and PLI-led Capex),” HDFC Securities said in a report.