Private Capex Share Drops to 10-Year Low in FY24 as Unlisted Firms Scale Back

Private capital expenditure (capex) share in the gross fixed capital formation (GFCF) has declined to a decadal low of 33% in the fiscal year 2024, according to a report by ICRA. It came after a sharp expansion of 23% in FY23, the agency said in a statement on Monday based on its analysis encompassing 4,500 listed entities and 8,000 unlisted entities.

"Notwithstanding a moderation from 28% in FY23 to 12% in FY24, capex by listed entities continued to record a growth. This implies that the capex of unlisted entities contracted in FY24, dragging the overall capex," said the domestic rating agency.

GFCF encompasses the gross addition to fixed assets and intangibles and constitutes around 30% of India’s nominal GDP, making it the second-largest component after private final consumption expenditure.

It noted that over FY15 to FY24, GFCF has grown at a compounded annual growth rate (CAGR) of 10%, which has been slowing down since FY23. "While the Government’s strong capex push and household investments in real estate contributed favourably to the growth in GFCF in FY24, private capex growth remained slow. This led to moderation in the GFCF growth to 9% in FY2024 from 20% in FY23," it added.

"Weak domestic consumption, especially urban, muted export demand, and influx of cheap Chinese imports in some sectors, among other factors, restricted the capacity expansion plans of Indian corporates," said K Ravichandran, executive vice president and chief rating officer at ICRA.

He also added that this slowdown is being largely led by unlisted entities, as listed corporates continue to expand. "This has led to an uptick in the latter’s share in the total capex pie to 16% in FY2024 from 14% in FY2022,” he stated further.

Capex Trends Among Listed Entities

Listed companies account for 16% of the total private sector capex and 5% of the total domestic capex. From FY15 to FY2021, the share of listed entities in the total capex had declined as their capex grew at a 10-year CAGR of 6% against 9% growth in private, 11% in public and 10% in overall capex.

Private sector investments have been majorly driven by sectors like oil and gas, power, iron and steel, auto and telecom. Capex by listed companies is growing by 28% in FY23 and 12% in FY24.

After the pandemic shock, cash generation of corporates improved with the ratio of cash flow from operations vis-à-vis capex increasing to 1.6 times in FY2024 from an average of 1.3 times from FY14 to FY20.