Revival in capex spending boosts order book of capital goods companies

After a sluggish first half of the current financial year, India’s capital expenditure (capex) has gained momentum, registering 48% year-on-year (YoY) growth in December quarter. The government had earmarked ₹11.11 lakh crore for capital expenditure in the current fiscal. The resurgence in government spending is proving to be beneficial for companies in capital goods space.

The company’s infrastructure projects segment saw order inflows of ₹49,070 crore, reflecting a 14% annual growth on the back of increased government spending post-election and it expects further expansion in the coming quarters.

The first half of FY25 saw a decline in government capital expenditure, contracting by 15% annually due to election-related restrictions on spending, monsoons and global economic uncertainties. However, the third quarter saw a sharp recovery and fourth quarter spending on infrastructure is expected to accelerate further as the government pushes to meet its full-year target of capex spending, CareEdge Ratings said.

The renewed focus on infrastructure and industrial expansion highlights the importance of public investment in sustaining economic momentum amid geopolitical tensions and fears of trade wars, analysts noted.

According to CareEdge Ratings, India’s Gross Fixed Capital Formation (GFCF) had risen to 30.8% of GDP in FY24, compared to the pre-pandemic average of 28.9% (FY15-FY19). This increase was largely driven by public sector capex and household investments in real estate.

The government’s commitment to infrastructure spending, including highways, railways, and energy projects, has played a crucial role in supporting growth. However, private sector capex remains sluggish, with businesses hesitant to expand amid demand uncertainties and high borrowing costs, CareEdge Ratings said.

The sustained expansion of capital expenditure, particularly in infrastructure, manufacturing, and defence, will be crucial in maintaining India’s growth momentum. If the current growth trajectory continues, FY25 could witness one of the strongest capex-led recoveries in recent years, analysts said.