Three out of every four companies from a sample of 373 constituents of the S&P BSE 500 index, for which audited and unaudited numbers for FY23 were available, reported year-on-year improvement in gross fixed assets (GFA). Companies from capital-intensive sectors including oil and gas, metals, and power form a major chunk of incremental GFA. The sample excludes banking, finance, insurance, IT, jewellery, ecommerce, and trading companies.
The sample’s total GFA increased ₹6.8 lakh crore or by 16% in FY23 to ₹48.9 lakh crore. The increase was ₹2.7 lakh crore in the preceding year.
“Given a relatively stable domestic macroeconomic environment and global opportunities especially with the China+1 strategy, India Inc is investing in capex,” said Sruthi Thomas, sector head, corporate ratings, ICRA.
PLI Schemes Also Boosting Private Investment
The increase is in line with the 17% rise in gross fixed capital formation in nominal terms in FY23, according to national accounts data released in May. Lack of corporate capital investment has held the economy back from growing faster. India’s economy expanded 7.2% in FY23.
The current capex cycle has two components, according to Sagar Desai, senior analyst, India Ratings and Research – steady state capex activities to expand capacities to meet current demand and capex for diversification into either new or ancillary businesses.
“While the first type of capex takes into account the short to medium-term demand scenario, the second component is dependent more on the medium to long-term view taken by corporates,” Desai said.
The government’s Production-Linked Incentive (PLI) schemes are also encouraging private investment. Introduced in FY21, the schemes offer Rs 2 lakh crore in incentives for incremental production in 14 sectors including large-scale electronics manufacturing, IT hardware, pharmaceuticals, telecom and networking, white goods, textiles, and food processing.
These could trigger more investments going ahead.
“While electronics and white goods manufacturing have shown capex momentum, sectors like textiles and solar PV modules are yet to show major traction,” said Desai of India Ratings.
The sample data showed that companies in the oil and gas sector dominated the trend in capital investments, contributing 73.8% to incremental GFA in FY23, followed by the power, and metals and mining sectors with a share of 13.4% and 11.6%, respectively.
In the oil and gas sector, Reliance Industries Ltd (RIL) accounted for incremental GFA of Rs 2.7 lakh crore in FY23. The 12 state-owned companies in the sector including upstream producers, oil marketers and city gas distributors posted a cumulative incremental GFA of Rs 2.2 lakh crore.
At the aggregate GFA level in FY23, the oil and gas companies in the sample contributed 32.1%, followed by the power sector at 16.4% and telecom equipment and services at 10.7%.
Leverage Ratios
The sample’s net debt increased to Rs 2.1 lakh crore in FY23 from Rs 1.4 lakh crore in the previous year. The net debt-equity ratio inched up to 0.5 from 0.4 during the period.
Economists see no cause for concern as leverage ratios are still low.
According to Madhavi Arora, lead economist, Emkay Global Financial Services, corporate profitability may not be impacted due to higher debt levels.
“Given easing commodity price pressure, operating profits will be maintained despite a marginal increase in debt,” Arora said. “Besides, leverage ratios are far from being ominous at this point.”