Capex Takes Off
Fortune India|December 2021
A lean, deleveraged private sector is looking for expansion, putting investments back on track.
Joe C. Mathew

ON JUNE 24, Mukesh Ambani, the Chairman and Managing Director of Reliance Industries Ltd. (RIL), said his company achieved a net debt-free balance sheet after raising $44.4 billion through a mix of equity sale, rights issue and asset monetisation in FY2021. Addressing shareholders virtually at the 44th Annual General Meeting, he announced a mega investment in sunrise sectors. “Initial investment from our internal resources in the new energy business will be over $10 billion in three years,” he said. RIL registered a net profit of ₹53,739 crore in FY2021, 34.8% more than the previous year.

The growth template laid out by India’s largest business enterprise is not something unique. Hundreds of Indian companies have been utilising the Covid-19 induced economic disruption to become leaner and financially healthier. This means they are ready to make fresh investments in capacity addition and expansion.

JSW Steel, for instance, plans to spend around ₹28,000 crore to expand steel-making capacity from 24.5 million tonnes (MT) to 36.5 MT by March 2024, Tata Motors is investing ₹28,900 crore – in subsidiary Jaguar Land Rover and hydrogen fuel cell vehicles – in FY2022, while Adani Ports and SEZ Ltd. is planning a capital expenditure (capex) of about ₹4,000 crore in FY2022. Similarly, Aditya Birla Group has budgeted ₹2,600 crore for capex this year, while another group entity, Ultratech Cement Ltd, has set aside ₹1,500 crore. Telecom major Airtel says its FY2022 capex may be $5 billion, up from $4.6 billion the previous year, as it gets ready to offer next generation services (including 5G) in the coming years. The list goes on.

Soumya Kanti Ghosh, Chief Economic Advisor, State Bank of India, agrees that the FY22 scenario is optimistic with announcements of investing around ₹5.6 lakh crore in first four months (April-August 2021) itself. “Around 70% (of that) is coming from the private sector,” he says.

The return of India’s private capex cycle is fueled by multiple factors. The Production-Linked Incentive (PLI) Scheme of the government has been tailor-made to encourage private investments and lower corporate tax rates mean companies have more money. Also, inflow of foreign funds remains strong, accommodative monetary policy is ensuring sufficient liquidity, and demand (both domestic and export) is rising after hibernating for years due to economic slowdown, and of late, the pandemic. The rise in capex, though, is not across sectors. There are visible signs of investment revival in renewable energy, commodities, real estate, pharmaceuticals, electrical and electronics sectors. However, services sectors such as tourism, hospitality and travel, hit by the pandemic, will wait for the economy to enter the post Covid-19 growth phase before loosening their purse strings.

The PLI Push

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