Fitch Ratings has predicted that India’s corporate sector is likely to experience an increase in capital expenditure (capex) due to the country's supply-side measures, healthier corporate and bank balance sheets, and structural demand visibility. The rating agency expects that the capex of its rated corporates in India will continue to grow by 10-12% per year over the financial year ended March 2023 to FY24. This growth is expected to be driven by recent government reforms, such as the lower corporate tax rate and production-linked incentive schemes, and rising state spending on infrastructure. However, the agency cautioned that a weak global economic outlook, currency pressures, and rising interest rate risks could pose a risk for India’s investment demand.
Key Points:
1. Fitch Ratings expects India's corporate capex to grow by 10-12% annually over FY23 to FY24, owing to the country's supply-side policy steps, domestic corporates focusing on localisation, and multinationals looking to reduce risk in global supply chains.
2. Structural demand visibility, supply-side measures, and healthier corporate and bank balance sheets are expected to push capex up for the corporate sector in India over the medium term.
3. Government reforms such as the goods and services tax (GST) act, lower corporate tax rate, production-linked incentive (PLI) schemes, and rising state spending on infrastructure may further boost investments in India.
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4. However, weak global economic outlook, currency pressures, and rising interest rate risks may pose risks for the country's investment demand.
5. India's GDP growth is expected to slow to 6% in FY24, compared to 7% in FY 23 and 8.7% in FY 22, on the back of rising interest rates to tackle inflation and fading post-pandemic demand, which may temper investment demand tailwinds from the domestically focused economy.
