Private sector capital expenditure zooms 42% in Q2, shows CMIE data

But project completions slightly lower than in March quarter

Private sector companies announced the setting up of factories and other new projects worth Rs 4.1 trillion in the three months ended September, a 42 per cent rise from the year-ago period, according to data from project tracker Centre for Monitoring Indian Economy (CMIE).
 

Coupled with government announcements of roads, railways, and similar new projects worth Rs 1.4 trillion, the total value of project announcements for the quarter reached Rs 5.49 trillion. 
 

This comes after a lacklustre June quarter amid elections and the declaration of results that saw less than half of this value.

Project completions, however, were slightly lower than in the previous quarter. The private sector and the government together completed Rs 0.8 trillion worth of projects in the September quarter, compared to Rs 1.9 trillion in the same period last year.

Sectoral data shows manufacturing as the biggest contributor, with new project announcements worth Rs 3.39 trillion in the September quarter. 

 

This is more than double the Rs 1.4 trillion seen in the same period last year. There has been an increase in the value of services, excluding financial services, as well as construction and real estate projects taken up in the latest quarter. However, electricity projects have seen a decline.
 

Sectors, such as renewable energy, metals, industrials, and newer segments like artificial intelligence, are likely to see increased investments as the long-term capital expenditure cycle unfolds, according to Deven Choksey, managing director at DRChoksey FinServ. Choksey noted companies are relying less on borrowings to fund these investments.
 

“Most of the money is coming through internal generation and fundraising through equity,” he said.
 

The easy availability of equity capital is acting as a tailwind for expansion plans, but a large portion of incremental capex is also driven by government initiatives like the production-linked incentive (PLI) scheme and increased government expenditure in the recent past, which has spilled over into orders for the private sector, according to independent market analyst Anand Tandon. Without these drivers, the inherent demand for large-scale capacity expansion is not necessarily in evidence yet, Tandon said.

“As I see it, it is totally driven by the government,” he said.
 

Existing capacity utilisation levels have seen some limited uptick, according to official data. “At the aggregate level, capacity utilisation (CU) in the manufacturing sector increased to 76.8 per cent in Q4FY24 from 74.7 per cent in the previous quarter. Seasonally Adjusted CU, however, remained stable at 74.6 per cent in Q4FY24,” said the Reserve Bank of India quarterly order books, inventories and capacity utilisation survey for March 2024 was released last month.

Other indicators show signs of increased private sector investment in the first quarter of FY25 compared to the Q4FY24, according to a September 2024 EY Economy Watch report authored by chief policy advisor D K Srivastava and senior managers Muralikrishna Bharadwaj, Tarrung Kapur, and Ragini Trehan.

“Gross fixed capital formation, which measures investment demand in the economy, grew 7.5 per cent in Q1FY25, increasing from 6.5 per cent in Q4FY24... This has happened despite a contraction in the government of India’s capital expenditure in Q1FY25, indicating a higher capex by the private corporate sector,” it said.