Only a handful of big companies are ready to spend big

Bankers said the private capital expenditure cycle is quite uneven as large spending is mainly confined to government projects, with only a few large groups planning to spend on large projects. Adani and Tata Group are among the groups investing in new projects or capacity expansion.

“We have yet to see huge interest from companies, beyond the usual names, to say that the capex cycle has resumed in full swing. Companies are spending, but it is not across the spectrum,” said one of the above bankers on condition of anonymity.

Experts and bankers said many companies are reluctant to undertake large projects amid rising inflation and high interest rates, while plant capacity utilization has improved by more than 75%, a level where most companies are looking to make room for future growth. expand factories.

“After the deliveries have taken place over the past few years, some companies are reluctant to take fresh loans as the interest rate cycle has turned. They know there will be further increases, and that could impact margins and bottom line,” the banker said.

Two years after keeping interest rates at record-low levels to boost growth during the pandemic, the Reserve Bank of India hiked the repo rate by 190 basis points (bps) from May. This made borrowing costs higher for retail and corporate borrowers.

In fact, many corporate borrowers whose loans were linked to an external benchmark such as the repo rate have requested banks to place it on the marginal cost of funds-based lending rate (MCLR), an internal benchmark with slow transmission. The one-year MCLR has increased by 50 bps since May.

Sitharaman made allocation in the budget 7.5 trillion for government capital expenditure, the expectation of a record expenditure – 35% higher than the previous fiscal year – will encourage the private sector to boost expenditure as well. But the slow response from the private sector prompted him to ask top businessmen why companies are not increasing spending despite tax cuts and other fiscal incentives. The lukewarm response has forced the government to do the heavy lifting to boost economic growth.

Banks said that public sector companies have also emphasized on investment. Central Public Sector Enterprises spent 1.37 trillion in the first quarter of FY23, nearly 21% of their annual target 6.61 trillion, showed data from CareAge. In FY22, these entities introduced . Achieved only 79% of the annual capex target of 5.95 trillion by February 2022.

Mint also revealed how Adani was interacting 14,000 crore loan for coal-to-polyvinyl chloride plant in Gujarat and how Jindal Steel and Power Ltd was to mobilize 15,000 crore for the expansion of its Angul plant in Odisha.

Another banker said that lenders are receiving loan requests for new projects in the medium and small corporate categories. However, these projects 50-500 crore will not be able to move the needle like projects with large capital expenditure.

“Just today, we had an internal meeting to look at some of the new mid- and small-project proposals. There is substantial interest from sectors such as textiles, solar power and ethanol blending,” said the second banker on condition of anonymity.

Experts say private investment remains weak, but may pick up in the coming months. “With capacity utilization rising above 75%, with the demand scenario improving, we can expect a spurt in the private investment cycle,” said a report by CareAge on September 15. However, the Centre’s continued thrust on capital expenditure is a welcome move. Increased private participation is necessary to free animal spirits in the economy.