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Capital Allocation Takes Centre Stage For CEOs

Fortune India

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October 2024

The evolving private capex story shows some CEOs are betting heavily on the future, while some are making the best of existing resources.

- V. Keshavdev

Capital Allocation Takes Centre Stage For CEOs

WHAT DEFINES A GREAT CEO? While there’s no simple answer, two traits certainly stand out: First, being an effective leader and second, a skilled capital allocator. While the former is hard to pin down with certainty, it’s clear that India Inc. is making significant strides in the latter.

“A CEO’s role is getting more and more complex and multi-dimensional. Just in the past few years, they’ve had to cope with a global pandemic, busted supply chains, wars, stubborn inflation, and many other disruptions. Any one of these alone is enough to derail a CEO’s agenda!” says Rajat Dhawan, managing partner (India), McKinsey & Company, who believes recent years have been a defining era for leadership.

Yet, a closer look at the numbers by Fortune India reveals a spirit of resilience: India Inc. has not just weathered the storm but quietly mastered the art of capital allocation. So much so that the popular refrain — the private investment cycle has been stuttering, held back by cautious capital deployment — appears increasingly out of sync with reality.

Over the past five years, corporate India has demonstrated a calibrated and balanced approach to capital allocation, with gross block (plant, machinery, buildings, campuses, fleet etc) of listed 1,356 companies expanding to ₹86.36 lakh crore ($1.05 trillion) compounding at 11.08% over FY19FY24. This measured asset expansion has closely aligned with a steady 9.52% growth in net sales, indicating that firms are not over-investing but rather building capacity in line with demand (See: Is the animal spirit coming back?). The focus has been on ensuring that investments support growth without creating excess capacity.

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