New Delhi, June 10 Indian corporates are projected to double their capital spending to $800 billion-$850 billion over the next five years, which will be largely financed by operating cash flows and facilitated by ample domestic funding options, said an S&P Global Ratings report on Tuesday.
Barring execution mistakes or negative macro changes, these investments should boost business scale without driving up leverage, the report noted.
“Corporate India is chasing growth opportunities. In our view, Indian companies are well positioned for a growth run. Balance sheets are the leanest they've been in years. Companies are investing to meet demand underpinned by favourable government policies and a positive economic outlook,” according to the credit rating agency.
Successful execution of plans would enlarge their operational scale, providing lasting cost benefits and business efficiencies.
Higher investments in power, particularly renewables, will be a major spending area. Power, including transmission, combined with airlines, and emerging areas like green hydrogen, will (by estimates) account for about three-quarters of the increase in capex over the next five years.
“In absolute terms, investments in airports could double, or even triple during this period. Conventional sectors such as steel, cement, oil and gas, telecom and autos will grow at a more steady pace of 30-40 per cent,” said the report.
Healthy starting points and strong operating cash flows will keep credit strains in check. Companies across sectors have deleveraged meaningfully over the past three to four years including utilities (except renewables).
Earnings and operating cash flow across sectors are about 60 per cent higher or double the levels from five years back, and will grow further, the report noted.
In the airlines sector, total investment in new aircrafts will likely exceed $100 billion.
New areas such as green hydrogen, semiconductors and battery plants should see significant debt funding. However, these projects are undertaken predominantly by large companies, including conglomerates, the report noted.
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