A rebound in the Indian economy, spurred by pent-up demand and government spending, and the cheapest money in two decades, have prompted metals and cement producers, among others, to resume their capital spending plans, gradually pulling out of an almost year-long slump.
The cement industry was the first off the block to announce new capital expenditure plans. Last week, UltraTech Cement Ltd, India’s largest cement maker and the flagship of the Aditya Birla Group, announced a Rs 5,477 crore capex programme to increase its capacity by 12.8 million tonnes per annum.
“The cement industry has been witnessing healthy volumes post relaxation of lockdown, on the back of the government’s thrust on infrastructure, underlying demand from the rural economy and individual home builders,” Kumar Mangalam Birla, chairman of Aditya Birla Group, said on Thursday. The new capacity is expected to go on stream by March 2023.
On Monday, the group’s flagship metals company, Hindalco Industries, announced the start of a Rs 7,000 crore capex programme to double its downstream aluminium capacity to 600,000 tonnes with a new Rs 730 crore extrusion plant in Silvassa.
The resumption of spending plans is a sign Indian companies are turning optimistic about a quick economic revival. Private capital spending to complement that of the government is critical to a faster recovery in India, which is headed for a record contraction in the current fiscal.
Green shoots on capex are also visible in the realty sector. Prestige Estate Projects had said that it intends to start work on Bandra Kurla Complex and Mahalakshmi Mumbai commercial office from the fourth quarter of this year, with an investment estimated at Rs 2,800 crore. These projects are likely to be completed in the next four years.
With manufacturing activity, indirect tax revenues and highway toll collections picking up, analysts expect the manufacturing sector to loosen its purse strings first while public capex and services industries would lag. This may lead to a “two-track recovery”, with exports, manufacturing capex and pockets of real estate leading, whereas services and leveraged consumption lagging behind.
To be sure, most firms, saddled with inventory and low capacity utilisation, still remain cautious about capital spending.
“We foresee the capex landscape perking up in select pockets amid global reflation,” Edelweiss Securities said in a December 2 note to clients. “Among key categories—government capex, corporate tradeable (manufacturing), corporate non-tradeable (services), housing and others—we expect good traction in manufacturing capex (tail-lifted by exports) and pockets of real estate (upper income, metros) helped by lower rates.”
