Corporate capital expenditure recovery ruled out in FY26: India Ratings
Mumbai, Jan 9, 2025
Amid multiple headwinds and weak macroeconomic and microeconomic conditions, a sustained easing of banking system liquidity is necessary, the agency added
Coinciding with signs of a slowdown in the economy, India Ratings today stated that any broad-based or strong recovery in corporate capital expenditure (capex) is likely to elude the next financial year (FY26) due to uncertainties in both domestic and external demand.
The uncertainty is adversely affecting the overall corporate sector capex. Interest rates on credit are not the primary deterrent to decisions about capital expenditure, said Soumyajit Niyogi, director, core analytical group, Ind-Ra, in a webinar on the credit market outlook.
However, capex in specific pockets and sectors such as cement, new-age investments like data centres, energy transmission, logistics, and metals will continue. The cost of borrowing for most large and highly rated entities has risen in FY25. However, deleveraged balance sheets have lessened the financial burden for corporates. The volatile operating environment and uncertain aggregate demand remain the key deterrents to capex recovery, he said.
Growth in the Indian economy is estimated to slow to a four-year low of 6.4 per cent in FY25, falling short of the Reserve Bank of India’s (RBI’s) projection of 6.6 per cent, according to the First Advance Estimates of the National Statistics Office (NSO). In its monetary policy review in December 2024, the RBI lowered its growth estimate for FY25 to 6.6 per cent from the earlier estimate of 7.2 per cent.
The rating agency stated that it expects FY26 to be a year of headwinds. As a result, the market and financing conditions will face volatility and exhibit moderately tight financing conditions. Key headwinds will include external factors, the extent of indebtedness in the retail lending space, volatile banking system liquidity, and the domestic growth-inflation conundrum.
Amid multiple headwinds and weak macroeconomic and microeconomic conditions, a sustained easing of banking system liquidity is necessary. The uncertain outlook on near-term domestic growth and an unstable global operating and financing environment do not bode well for financing conditions, especially for the financial sector, the agency added.
[The Business Standard]
