Capex cycle gets armed with new growth drivers: Crisil

Mumbai:The external environment for the capex cycle in the current decade will more likely resemble the first decade of the century (2000's) in terms of global liquidity, monetary policies and healthy balance sheets, a report based on key economic indicators said.

According to the Crisil research report on economic recovery and pace of investment in the economy, the Industrial Entrepreneur Memorandum (IEM) filings with the government, the pace of environmental approvals, and the surge in foreign direct investments (FDI have already crossed pre-pandemic levels and confirm a recovery. As per the report, the PLI scheme has given a much-needed booster dose to failing capex. Without it, capex would have likely taken nearly two years to touch pre-pandemic levels.Actualisation of the scheme will result in aggregate industrial capex rising 1.3 times through fiscals 2022-2024 in comparison to fiscals 2018-2020, said the report.

The new capex cycle will be relatively distinct compared with earlier cycles on several counts. First, asset-heavy sectors such as metals, cement, and mining will see more localised investments, led by large players at their existing sites (brownfield capex). In comparison, asset-light ones such as pharma, telecom equipment, mobile, and electronics will see more greenfield capex, led by PLI as well as supply chain diversification. Second, the pandemic- induced focus on digital and automation will spur growth. Third, rising emphasis on environmental, social, and governance (ESG) compliance will trigger green capex towards energy transition, especially for core industrial sectors, said the report.

Last fiscal, the top 350 of the 15,000 manufacturing firms (non-infra - listed and unlisted) on Crisil's Quantix platform deferred capital expenditure (capex) because of the Covid-19 pandemic. This led to an estimated 14 per cent contraction in their capex, albeit less than a 21-23 per cent decline for the entire industry.