Corporates’ capex intentions are coming back to pre-Covid levels

For example, capital goods imports are up 13.6% from pre-Covid levels seen in October 2019, although domestic capital goods production remains sluggish. A report said the central government’s capex, which has dipped due to the second Covid wave, has seen a rebound and the infrastructure sector is witnessing a slow but steady growth in bank credit. Bank credit in the infrastructure sector is being led by lending to the airports and roads sectors, partly supported by the government’s capex push.

In terms of new capex intentions, the metal is the clear leader, accounting for more than a quarter of private corporate capex inflows helped by the global commodity cycle. Metals are followed by electrical equipment, chemicals and fermentation-based products, all of which are at least partially supported by production-linked incentive schemes, the report said.

Analysts at domestic brokerage houses also say that companies across sectors are continuously making losses, which, in their view, is laying the groundwork for recovery of capital expenditure. The debt-equity ratio of the listed corporate sector (25 sectors as a whole) declined from 0.37% in FY2011 to 0.53% in FY2010. Except for the textile and commercial vehicle sectors, leverage is below the long-term average across all sectors. Besides, the interest rate environment remains favorable for private capital expenditure.

Meanwhile, investors should note that the operating profitability of BSE Capital Goods companies has also witnessed a turnaround, though profitability growth declined from 46.21% YoY in 2QFY22 to 135.1% YoY in 1QFY22 due to margin pressure due to margin pressure. Added a high base, Nirmal Bang report.