India Inc’s cash buffer shrinks first time in three years, debt rises in a sign of private capex revival

At the same time, gross debt at the end of September 30 expanded sharply by Rs 2.04 trillion to Rs 29.15 trillion, the sharpest rise in three years, data showed.

This simultaneous decline in cash and rise in leverage could be an indicator that corporates are increasingly deploying internal accruals as well as tapping borrowings for expansion as demand visibility improves, supply chains normalise and financing conditions ease.

India Inc's cash buffer sees first dip in three years

“Overall trend is gradually improving with some seasonality and cyclical factors at play like interest rate, inflation, capacity utilisations etc which adds to the short-term volatility,” said Narendra Solanki, Head – Fundamental Research (Investment Services) at Anand Rathi Shares and Stock Brokers.

Solanki pointed out that after a muted Q1, investments have seen a strong rebound in Q2FY26.

“If you see FY26 data, the private capex—although declined in Q1—has seen a sharp uptick in Q2 crossing about Rs 15 trillion and taking overall H1FY26 number to Rs 34 trillion, which is a 22.4% growth. We believe private capex is picking up slowly and expected to pick pace in H2 and FY27 as most macro indicators are currently favourable, demand situation is improving, and inflation and interest rates are also down.”

Manufacturing, heavy machinery and infrastructure remain at the core of this capex cycle.

“In terms of sectors leading capex, manufacturing, machinery and infra (roads, power, T&D, railways) remain at the top with industrials and other ancillary following suit,” Solanki added, while mentioning that emerging sectors too are scaling up investments.

“Some emerging sectors like renewables, digital infra, electronic manufacturing and semicon too should see decent traction in next few years.”

A senior Mumbai-based equity analyst, who requested anonymity, echoed the view that the decline in cash reserves is less a sign of stress and more an indicator of deployment of capital.

“For a long time, India Inc focused on deleveraging and conserving cash. What we’re seeing now is a likely shift from balance sheet repair to balance sheet utilisation. The combination of lower rates, strong demand visibility and government push in infrastructure is encouraging firms to invest again,” the analyst said.

Balance Sheets Strengthening

Experts have cautioned that while absolute debt and cash numbers may indicate dropping cash reserves, comparing debt and cash relative to sales indicate that India Inc’s balance sheets are continuing to strengthen.

“We should see debt through the prism of sales as that is what is the prime purpose of debt; to create asset or working capital to drive sales. Hence, when you look at debt as a percentage of sales, it is largely within 0.68 to 0.72 levels in the past six quarters, with marginal increase in the latest quarter,” according to Anand Rathi’s Solanki.

This implies that leverage has remained broadly stable when measured against revenue generation, even though the rupee value of borrowings has risen.

Cash positions, too, have strengthened when indexed to sales, Solanki pointed out.

“The cash as a percentage of sales has been increasing gradually in the past six quarters and has risen from 16.7% to now about 18.4%, averaging 18%. So, the cash holdings have in fact risen.”