Private capex – Are animal spirits back?

financialexpress.com:

– By HDFC Asset Management Company Limited 

Investments in fixed assets by listed private manufacturing companies stood at Rs 8.1 lakh crore on a trailing 12-month basis as of September 2023, increasing by 17 per cent over September 2022 levels. This rise has been primarily driven by key industries such as energy, automotive and industrials. With nearly 75 per cent of total capex (~Rs 6 lakh crore as of September 2023) coming from private companies, this aligns well with the Government’s vision of boosting domestic manufacturing and the creation of an Atmanirbhar Bharat.

The recent Q2FY2024 Real GDP growth of 7.6 per cent showed investments in the economy, measured by Gross Fixed Capital Formation (GFCF), grew at 9.5 per cent in H1FY24, and at 11.0 per cent in Q2FY24. While government capex continues to grow at a strong pace, private capex is also seeing a turnaround, owing to the introduction of supportive policies by the Government. CMIE data indicates that 86 per cent of new project announcements (in INR terms) in the past 12 months were from the private sector. Capex reported by Listed corporates has also seen a sharp growth – over 2 times between FY2017-19 Rs 10-12 lakh crore range and FY2024 trailing 12-month level of Rs 23.9 lakh crore.

At the aggregate level, capacity utilisation (CU) in the manufacturing sector stood at 73.6 per cent in Q1FY2024. While this is lower than Q4FY2023, this is higher than the CU in the same quarter last year (72.4 per cent in Q1FY2023). Furthermore, the seasonally adjusted CU for Q1FY2024 improved by 130 basis points (bps) from its level in the previous quarter, and stood at 75.4 per cent. This rise in CU should ultimately result in new capacity addition over time. 

A partial reason