Domestic Factors Conducive For New Capex Cycle: India Inc | Arabian Weekly

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NEW DELHI: Amid lingering concerns that the much-delayed private capex cycle may not have taken root yet, Corporate India on Thursday said with capacity utilisation in many sectors being 75-80% if not higher, a strong momentum in private investments was firmly around the corner.

Pointing out that fresh investments have already started in many sectors, a clutch of senior company executives told FE on the sidelines of the CII Global Economic Policy Forum here that strong corporate balance sheets and an incipient revival in the rural economy would aid private capex.

However, some of them pointed out that many firms might wait till the interest rates go down and global uncertainties ease.

Chief Economic Adviser V Anantha Nageswaran told FE that that external uncertainties would always remain, and it should not deter the private sector from investing.

Sanjiv Puri, managing director, ITC said: “… all the domestic macros are in favour (of a new private capex cycle). The challenge is on the external front, and that’s why certain delays could be happening. However, I do expect sooner than later, things will start to pick up.” He noted that in many sectors including FMCG investments have already started. “We (ITC) did five projects last year. This year, we have started construction of three more,” Puri said.

According to Nadir Godrej, chairman and managing director of Godrej Industries, private capex would pick up “in another year.” “Given the economy is growing, demand is picking up, and capacity utilisation is getting close to 100%.” Godrej noted that after a period of stagnation, the rural market also seems to be picking up, with the rabi crop expected to be fairly good.

Prithviraj Srinivas, chief group economist, Mahindra Group, however, noted that currently, two-thirds of the projects being implemented are being driven by government spending. “Investment intention of the private sector has gone up. In terms of newer projects announced, we see two-thirds of them coming from the private sector.”

Projects that have been announced wherein private sector is intended to invest includes chemicals, machinery, electronics, and logistics, Srinivas said.

Gross fixed capital formation (GFCF) witnessed its share in the GDP increase from 34.7% in Q1 FY24 to 35.3% in Q2 FY24. the highest in 47 quarters. But this growth was still largely led by the government’s capital expenditure, going by the pace of Centre’s spending and investments by states and CPSEs.

Janmejaya Sinha, chairman BCG India also feels that capacity utilisation has really gone up. “We are close to 80% capacity utilisation. So, what is hampering private companies from getting into capex is just global uncertainty.”

Ajay Chhibber, Distinguished Visiting Scholar, Institute for International Economic Policy, George Washington University noted that unless corporate investments rise, the investment rate won’t rise much above 35%. All the macroeconomic factors are conducive for corporate investments.

“Capacity utilisation levels are at a high level, real exchange rate is more competitive and banks are more willing to lend. So if the corporate investment rises then we can grow to 7-7.5% per annum,” Chhibber said.

Source: The Financial Express

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