India Inc. to spend $45-50 bn annually over next 1-2 years: Moody’s

Capex by India Inc. will remain high over the next two to three years as overall capacity utilisation for the manufacturing sector is already quite high while consumption continues to grow on the back of population growth and a favorable demographic profile, according to Moody’s.

The rating agency expects companies to invest in new capacity to meet the ongoing consumption growth.

Rated Indian companies' capex will remain elevated at around $45 billion-$50 billion annually over the next one to two years, says Moody’s. With an annual capex budget of around $15 billion spread across its different business segments, Reliance Industries alone will account for around 30% of the portfolio capex.

The seven rated oil and gas companies in India will also account for around 30% of rated Indian companies' capex. These companies will spend around $15 billion annually to expand existing capacity and make green energy investments to reduce carbon transition risk. For instance, Oil and Natural Gas Corporation Ltd and Indian Oil will spend $6 billion and $4 billion, respectively, in each of the next two years on reserves addition, downstream integration and energy transition, as per Moody’s.

Government policies in India that emphasise growth of the manufacturing sector will also drive capex, the credit rating agency says.

The government's promotion of manufacturing as a basis for economic development and job creation will support capacity expansion and continued capex over the next few years, it adds.

“We estimate that rated companies in the automotive, metals and mining, and technology, media and telecommunications (TMT) sectors in India will account for around one-third of total capex, spending $15 billion-$16 billion each year,” says Moody’s.

JSW Steel plans to invest around $5 billion over the next two years to increase steel production capacity, improve raw material security, and expand downstream to produce more value-added products.

The combination of high capex and refinancing requirements means nonfinancial companies in India will continually tap the offshore debt markets, even though the share of such financing in their funding mix will likely decline from historical levels, says Moody’s.

Moody’s expects consolidated earnings for rated companies in India to grow 5% in each of the next two years, driven by broad-based growth across sectors including telecommunications and automobile manufacturing.

Indian companies are more insulated from external shocks because of the large domestic market. Infrastructure spending, increasing domestic energy consumption and rising demand for connectivity will support earnings across multiple sectors in India, the rating agency says.