Economists say the international slowdown will limit the strength of the new Indian cycle.
Private investment in India was hampered for years by heavy corporate and bank indebtedness and weak demand. But over the past two years, corporations and lenders have cut costs and raised equity capital, and companies have been able to spend on new capacity as demand has strengthened.
It has become so strong that productive capacity and working capital are now being used more intensively. In turn, this is driving higher demand for credit, said Swaminathan Janakiraman, managing director of India’s largest lender. state Bank of India ,State Bank Of India, “The capex What is happening is creating financing needs in industry and the services sector and to some extent a shift in borrowing from bonds to debt,” Swaminathan said. “The demand for corporate credit has been low for a very long time. And it’s time for a pick-up.”
SBI expects its corporate loan stock to grow between 14% and 15% this year and an average of 12% per annum in 2023 and 2024.
In the banking sector of India, there is a steady growth in lending. In the last two weeks of October, it was up about 17% from a year earlier. Lending to corporations, including small, medium and large businesses, grew 12.6% in September, the highest rate of annual growth since 2014, the latest regional data showed.
MV Muralikrishna, chief general manager for large sectors, said sectors with strong loan demand ranged from infrastructure to real estate, iron and steel and new economy segments such as data centers and electric-vehicle makers. corporate lending Feather Bank of Baroda, India’s second largest state-owned lender. “Six months ago, there was demand mainly from the infrastructure sector, but now it has become broader.”
Annual capital expenditure for India’s 15,000 largest industrial companies will hit 4.5 trillion rupees ($55 billion) in the fiscal year to March 2023 and 5 trillion rupees each in the next two fiscal years, estimates Hetal Gandhi, director of research Crisil Market Intelligence and Analytics. This expenditure will be about a third more than the average in the three financial years before the Kovid-19 crisis.
“While the initial part of these investments were financed through internal resources, lending from banks is increasing and is expected to increase further next year,” Gandhi said.
government push
Crisil estimates that about a quarter of current capital expenditure is linked to a government construction-subsidy scheme, called Production-Linked Investment (PLI), to be launched in 2021.
Dixon TechnologiesAn electronics maker with annual revenue of about 150 billion rupees ($1.85 billion), will receive incentives under the plan to set up facilities in five sectors, including electronics.
The company is expected to invest up to 6 billion rupees ($74 million) and is partly funding the expansion through Bank debt, said its chief financial officer Saurabh Gupta. “The credit environment is favorable and banks are ready to lend to companies, especially under the PLI scheme,” he added.
The government also plans to spend a record 7.5 trillion rupees ($92 billion) on infrastructure in 2022-23, which will boost demand for commodities such as steel and cement.
This has prompted Birla Corp to draw up a $1 billion plan to increase its annual cement manufacturing capacity from 20 million tonnes to 30 million tonnes. The company is partially financing it with debt but is wary of rising interest rates, said Harsh Lodha, chairman of its parent MP Birla Group.
“Capex recovery showing early signs of pick-up in private capex and continued support from public capex,” Morgan Stanley economists Upasana Chachra and Bani Gambhir said in a November 14 report.
He said the post-Covid reopening of the economy, policy measures to revive capital expenditure, and a strong balance sheet in the private sector were benefiting.
risk
However, a slowdown in global growth due to rising interest rates and pandemic restrictions in China presents a risk – or at least a limit – to this investment pick-up.
Already, October exports were lower than a year earlier, and economists at Nomura cautioned in a note this week that India’s investment cycles were closely linked to its export cycles. Hence the current investment phase was unlikely to be robust.
“October is the first contraction in exports in the post-pandemic phase,” he wrote. “Exports were last contracted in February 2021 – testifying to an increasingly challenging global environment and India’s sensitivity to this global slowdown.”
Credit Suisse economists noted that the weakness was widespread. Only the electronics sector saw higher exports in October.