Even as the Union Budget has outlined a Rs 10 trillion capital expenditure plan for 2023-24 to spur growth, domestic companies are likely to see a 10% to 12% increase in capital expenditure in the coming fiscal, Fitch Ratings said on Tuesday.
“We expect the capex for Fitch-rated corporates in India to continue growing by 10%-12% a year over the financial year ended March 2023 (FY23) to FY24,” the agency said. Capex was flat over FY19 to FY21 and grew 16% in FY22, it further noted. The forecast is for 29 Indian corporates publicly rated by Fitch, which includes eight state-owned enterprises and 21 privately owned entities.
Also read: Govt to set up committee to monitor tur dal stocks
The expenditure is focused on capacity expansion across industrial sectors, which are the mainstay of construction and manufacturing activities, against a backdrop of strong demand visibility, the agency said. Fitch has a GDP growth estimate for India of 6%-7% a year over the medium term.
The government too has urged private sector firms to increase their capex and is hoping to attract investments through measures such as the PLI scheme.
“We believe growth opportunities arising from India’s supply-side policy steps in recent years, domestic corporates focusing more on localisation, and multinationals looking to reduce risk in global supply chains may attract higher private investment in the medium term,” it said, but cautioned that progress that is slower than expected may present risks.
Certain government reforms such as the goods and services (GST) tax act or the bankruptcy code have been in place for some time, but more recent measures such as a lower corporate tax rate, the PLI schemes and rising state spending on infrastructure may further boost investments, it said.
Also read: Good rains in Assam raise hopes for ‘normal’ tea output
The rating agency however, said potential cost and currency pressures from commodity prices that remain high and a global economic weaker outlook present risks for India’s investment demand, as it remains a large net importer of energy and exports around 21% of its output.
The capex outlook may also be tempered by rising interest rates amid inflationary pressures for corporates with a smaller scale and weak financial profile, it further said. However, the secular nature of most capex drivers should mitigate these risks over the medium term.