Rated Indian companies will invest $45 billion-$50 billion annually over the next couple of years, with the oil and gas sector and Reliance Industries Limited collectively accounting for over 60% of the rated Indian portfolio’s spending.
“With an annual capex budget of around $15 billion spread across its different business segments, Reliance Industries alone will account for around 30% of the portfolio capex,” Moody’s Ratings said in a report.
The seven rated oil and gas companies in India will also account for around 30% of rated Indian companies’ capex. These companies will spend around $15 billion annually to expand existing capacity and make green energy investments to reduce carbon transition risk, Moody’s said. For instance, Oil and Natural Gas Corporation Ltd. and Indian Oil will spend $6 billion and $4 billion, respectively, in each of the next two years on reserves addition, downstream integration and energy transition.
Government policies in India that emphasize growth of the manufacturing sector will also drive capex, it said. The government’s promotion of manufacturing as a basis for economic development and job creation will support capacity expansion and continued capex over the next few years.
“We estimate that rated companies in the automotive, metals and mining, and technology, media and telecommunications (TMT) sectors in India will account for around one-third of total capex, spending $15 billion-$16 billion each year,” it said.
JSW Steel plans to invest around $5 billion over the next two years to increase steel production capacity, improve raw material security, and expand downstream to produce more value-added products.
Moody’s said the combination of high capex and refinancing requirements means nonfinancial companies in India will continually tap the offshore debt markets, even though the share of such financing in their funding mix will likely decline from historical levels. The funding cost of foreign currency borrowings will fall once the US Federal Reserve starts cutting interest rates in the coming quarters, which will further incentivize nonfinancial corporates to seek offshore financing.
Capex by the corporate sectors in India will remain high over the next two to three years. Overall capacity utilization for the manufacturing sector in India is already quite high while consumption continues to grow on the back of population growth and a favorable demographic profile. As a result, companies will invest in new capacity to meet the ongoing consumption growth, it added.