No big bang private sector capex for next few years: Icra

Private sector capital expenditure will be more measured and not excessively exuberant over the next few years, as global headwinds weigh down domestic activity, ratings agency Icra said in a note released on Tuesday. “The sustenance of domestic demand amid global headwinds would impact the capacity utilisation over the next couple of quarters and influence the pace of incremental capacity addition announcements through the remaining part of FY24 and H1 FY25,” it said.

Icra also said both the government and private sector will be more restrained in announcing new investments as they await clarity.

“Investment demand is likely to be cautious in H2 FY2024 (October 2023-March 2024) amid increased geopolitical tensions in Middle East, and a potential slowdown in momentum of government capex and project execution prior to the general elections,” it said.

The upcoming elections in five states may also break the momentum witnessed in first half of 2023, when government capex increased about 40%, Icra said. It said projection completion is expected to slow ahead of elections.

“As many as 628 projects with an anticipated cost of ₹7.7 trillion (lakh crore) are scheduled to be completed in H2 of FY24. This number is very large, and only a fraction of this is likely to be completed, given that project execution could potentially slow down towards the end of the fiscal in the runup to general elections, leading to spillovers to FY25,” said the note.

Signs of moderationWhile investment activity held up, signs of moderation were visible in the second quarter of this financial year, according to Icra. Government investment moderated slightlyin the quarter to Septemberr, after witnessing a stellar increase in the first quarter owing to a push by states and Centre.