Sitting on healthy cash reserves and aided by stronger balance sheets post Covid, India Inc is looking to step up its capital expenditure and investment plans. Industry captains and analysts say a mix of factors such as accommodative monetary policy and lower interest rates, reduced corporate tax rates and government incentives such as production-linked incentive (PLI) scheme, global liquidity and an upward commodities cycle are fueling optimism among companies.
“Corporates are sitting on cash as profitability has picked up in the post pandemic period. They are looking to invest in order to capture available opportunities of increased government spending, divestment, consumer demand revival and export market. PLI scheme and revival of real estate and housing will make a positive impact on the investment cycle .We believe sectors like IT, pharma, steel, sugar, cement, real estate and infrastructure will take lead in investment,” said Nilesh Shah, MD of Kotak Asset Management Co.
Executives of big business groups confirmed that investments were on the rise following the abatement of the pandemic. A Tata official said group companies were investing in several new projects across sectors such in automobile, power and steel as well as betting on new sunrise sectors.
Value of Investments at All-time High
“There have been significant investments committed in recent months betting on higher growth in an upbeat economy. We have been consistently making fresh capital allocation in multiple sectors after the pandemic,” he said.
A senior official, citing anonymity, said the group has made multiple investments aimed at both organic and inorganic growth. “We are committing big investments of $5-7 billion this year in logistics, supply chain, retail, chemicals and energy among others. Parallelly, we have also acquired stakes in tech firms focused on artificial intelligence (AI), blockchain, cloud, augmented reality (AR), gaming and banking software as part of our growth strategy. Our group will be a significant part of India’s growth story,” he said.
Listed Indian corporates reported record reserves and surplus of Rs 66.04 lakh crore as of March 31, 2021, up from Rs 56.48 lakh crore as of March 31, 2020. The aggregate value of investments of about 4,000 listed companies were at an all-time high of Rs 86.78 lakh crore in FY21 compared with Rs 67.55 lakh crore a year ago. These companies hold nearly Rs 26.68 lakh crore in cash and bank balance, again a record figure, and posted more than Rs 6.5 lakh crore profits in FY21.
Godrej Properties chairman Pirojsha Godrej said the cash on balance sheets has significantly improved and several sectors were witnessing growth and turnaround. “There is clearly an uptick in investments as the economy rebounds amid a conducive geopolitical situation,” he said.
Mahindra & Mahindra (M&M) has announced plans to deploy Rs 17,000 crore over the next three years, said Manoj Bhat, president and group CFO, Mahindra & Mahindra.
Out of the Rs 17,000 crore, the capital expenditure is of Rs 12,000 crore. Of this, Rs 6,000 crore will be for conventional automotive and Rs 3,000 crore for electric vehicles (EVs). The capex for the farm sector will be Rs 3,000 crore. The remaining Rs 5,000 crore will be invested in group companies as well as the auto and farm sectors.
The external environment for the capex cycle in the current decade will more likely resemble that seen in the first decade of the century in terms of global liquidity, monetary policies and healthy balance sheets, according to the latest Crisil report.