
Housing, a sector struggling for the past few years, could be the foundation supporting a revival in India’s capex cycle. A report by Axis Capital has identified housing construction, power generation and a several other new sectors to power the country’s capital formation in the next six years.
“Going forward, we expect growth to be investment-led, with the investment ratio rebounding to 34 per cent by FY30,” the report anchored by Neelkanth Mishra, Head of Global Research, Axis Capital and Part-Time Member, Economic Advisory Council to the Prime Minister.
The report adds, “New investment areas like green hydrogen, defence, solar modules, robotics, data centres, and energy storage are likely to add 60-80 basis points to India’s investment ratio. With strong growth in manufacturing and falling import dependency, demand for capital goods should grow as well.”
According to Axis Capital, real estate and power generation were the main drivers of the slowdown in investment activity between 2012 and 2021. “Of the 7 percentage point drop in investment-to-GDP, 5pp came from household spend on real estate and 3pp+ from corporate capex on machinery for utilities and manufacturing,” the report says, adding, “Urban real estate, which accounts for two-thirds of the value of construction, is prone to inventory cycles. Excessive power capacity addition between 2012 and 2016 necessitated a subsequent drop in capex.”
The report also lists out several challenges to capex revival. “Despite meaningful upgrades to India’s growth forecasts since January 2023, we do not think trend-growth expectations are likely to rise beyond 7-7.5 per cent”, the report said. Explaining its view, it said, “While faster productivity growth can offset weaker growth in labour, capital formation may be slower, given weaker global demand, China’s over-capacity, and slower foreign capital inflow. At the same time, the near-term slowdown is due to unintended monetary and fiscal (due to election-related slowdown in central and state government spending) tightening.”
The Axis Capital report also lists stocks which could be the most impacted by the rebound in capex activities. Among its top ‘Buy’ recommendations are L&T, Adani Ports, ABB, Container Corporation, Craftsman Auto, CESC and Hindalco.
The top ‘Sell’ suggestions are Bharat Electron, BHEL, Torrent Power, JSW Steel, Tata Steel and SAIL.
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