Private investment cycle set to pick up: Report

The private industrial capex appears to be getting into a whole new cycle after the pandemic hiccup, helped by conducive government support, accommodative monetary policies and global liquidity, Crisil Ratings said in a report.

The agency said last fiscal, the top 350 of around 15,000 manufacturing firms (non-infra listed and unlisted) on its Quantix platform deferred capital expenditure (capex) because of the COVID-19 pandemic.

It led to an estimated 14 per cent contraction in their capex, albeit less than a 21-23 per cent decline for the entire industry.

"We expect industrial capex to pick up, driven by conducive government support through policy measures such as the Production-Linked Incentive (PLI) scheme and reduced tax rates and accommodative monetary policies and lower interest rates,? the agency said in a report released Monday.

Other factors contributing to the increased industrial capex include Commodities upcycle, rising merchandise exports, supply chain diversification, healthy balance sheets and global liquidity, it said.

The external environment for the capex cycle in the current decade will more likely resemble that seen in the first decade of the century (2000's) in terms of global liquidity, monetary policies, liquidity, and healthy balance sheets, the report said.

It said the PLI scheme has given a much-needed booster dose to flailing capex.

"Without it, capex would have likely taken nearly two years to touch pre-pandemic levels," it said, adding that actualisation of the scheme will result in aggregate industrial capex rising 1.3 times through fiscals 2022-2024 in comparison to fiscals 2018-2020.

The agency said the new capex cycle will be relatively distinct compared with earlier cycles on several counts.

"Asset-heavy sectors such as metals, cement, and mining will see more localised investments, led by large players at their existing sites (brownfield capex)," it said.

In comparison, asset-light ones such as pharma, telecom equipment, mobile, and electronics will see more greenfield capex, led by PLI as well as supply chain diversification.

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The pandemic-induced focus on digital and automation will spur growth, it said.

The agency said rising emphasis on environmental, social, and governance (ESG) compliance will trigger green capex towards energy transition, especially for core industrial sectors.