Indian firms delay expansion plans amid demand, trade uncertainty: BofA

By Siddhi Nayak

 

Indian companies are holding back on big investment decisions pending clarity on domestic demand and the global trade outlook, according to a senior executive at Bank of America Corp.

 

Firms are focusing on paying down debt, opting for refinancing rather than expanding capacity, Shankar Subramaniam, the bank’s head of India corporate banking, said in an interview.

 

“Should the external environment shift in India’s favour, confidence in the durability of the demand cycle would rise,” said the Mumbai-based banker. “Until then, these uncertainties are leading to delays in decision-making and keeping companies in a wait-and-watch mode,” he said. 

 

Headwinds for Asia’s third-largest economy are rising as trade tensions with the US escalate. US President Donald Trump’s steep 50 per cent tariffs on Indian exports came into effect from Wednesday, upending a decades-long push by Washington to forge closer ties with New Delhi. Analysts estimate the new tariffs could shave as much as 1 per cent off the nation’s gross domestic product.

 

The levies may further dent prospects for Indian firms after they reported weaker earnings growth in the latest quarter. Despite the Reserve Bank of India cutting rates by 100 basis points between February and June to spur economic activity, credit growth remains muted.

 

Loans to industry grew 5.5 per cent year-on-year in June after increasing by 8.1 per cent in the same month last year, according to data by the central bank. Capital raising via local currency corporate bonds surged 16 per cent during April to June year-on-year, with total financing estimated at nearly ₹3.4 trillion ($38.8 billion), according to Prime Database.

 

“Currently companies are preferring the rupee bond market for fundraising due to its lower costs,” said Subramaniam, who has worked at the US bank for about 15 years. 

 

Mergers and acquisitions activity is picking up, with companies exploring domestic and overseas opportunities, said Subramaniam. If more deals are closed, the credit cycle will automatically pick up, he said.

 

BofA has been expanding its corporate banking footprint in India, including its offerings in global payments and transaction services. However, its investment banking franchise, which is undergoing a rebuild, has lagged in league tables in India.

 

The bank ranked seventh in equity capital market advisory in 2024 and hasn’t broken into the top 10 so far this year, according to data compiled by Bloomberg. The firm is also far behind rivals in M&A rankings for India-related transactions.