Capex cycle in India not yet on durable, self-sustaining path: Nomura

Sectorally, new investment contracted on a y-o-y basis in FY25 ytd (April-December) for machinery, electricity, mining, transport services and infrastructure, while picking up for chemicals, metals, transport equipment, construction & real estate and IT. (Representational image)

New investments projects announced slowed in the quarter ending December 2024, suggesting that the capex cycle in India is not yet on a durable, self-sustaining path, according to a note issued by Nomura on Thursday.

In the note issued on January 9, Nomura's economists wrote, "Quarterly fluctuations aside, the size of new investment projects announced remains low by historical standards. This might reflect a mix of the recent slump in public capex, lacklustre domestic demand, and competition from Chinese imports.

"While public capex should improve in the coming quarters, we are concerned that India’s broader cyclical slowdown amid rising global uncertainties, may impede private investment appetite in the near term".

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The economists quoted the data from the Centre for Monitoring the Indian Economy (CMIE), which showed that the pace of new investment projects in Q4 2024 (ending December 2024) slowed to ~Rs6.2 trillion versus Rs 7.2 trillion a quarter ago (Q3 FY24 or quarter ending September 2024), and Rs 7.8 trillion a year ago (in Q4 2023 or quarter ending December 2023).

On a 4-quarter rolling sum basis, new investment stood at 9.7 percent of GDP in December 2024 quarter vs 10.5% in September 2024 quarter, and 13.3% of GDP in December 2023 quarter. New investment announcements in manufacturing were broadly stable at 4.7 percent of GDP, while in infrastructure they fell to 3.6 percent of GDP from ~4.2 percent in the previous two quarters, said the note.

Sectorally, new investment contracted on a y-o-y basis in FY25 ytd (April-December) for machinery, electricity, mining, transport services and infrastructure, while picking up for chemicals, metals, transport equipment, construction & real estate and IT.