Private Capex Faces Headwinds From Demand Uncertainty, Commodity Prices And Cheap Imports: SBI Caps

New Delhi, Aug 22 (KNN) Uneven demand, commodity price volatility, geopolitical tensions and competition from cheap imports are weighing on corporate investment decisions, with private investment confidence still recovering, according to a paper prepared by SBI Caps for a two-day banking conclave attended by Finance Minister Nirmala Sitharaman.

The paper said companies may defer large capital projects when demand, input costs, pricing and future cash flows remain uncertain, even though many large firms have the financial capacity to invest, TOI reported.

Investment Demand to Rise

The paper expects average annual investment demand to increase to around Rs 30 lakh crore during FY27-FY31, from about Rs 20 lakh crore during FY22-FY26. However, fund demand is expected to remain uneven.

An analysis of NSE 200 companies showed that many firms have prioritised dividends, acquisitions and retaining cash on their balance sheets over greenfield expansion. Investment is expected to remain concentrated in sectors where structural demand, policy support and capacity constraints provide a stronger case for new capacity.

Manufacturing and infrastructure are among the high-capex sectors, while IT and FMCG companies have generally prioritised dividends. Metals combine high capex with high dividend payouts, while pharmaceuticals remain relatively low on both measures.

Public Investment, Broader Funding Needed

The paper said continued public investment in transport, power, logistics and urban infrastructure would remain important for the next private capex cycle by supporting demand and improving industrial infrastructure.

Emerging investment opportunities include semiconductors, advanced manufacturing, data centres and other technology-driven sectors.

While banks are expected to remain the main source of funding, the paper said their balance sheets may not be sufficient to meet future requirements. Banks are projected to finance around 70 per cent of the estimated Rs 85 lakh crore in external funding needs during FY27-FY31.

It called for a larger role for debt capital markets, securitisation, alternative investment funds, pension and insurance funds, infrastructure investment trusts and foreign investors.

Six-Month Action Plan

The paper recommended that banks develop a pipeline of bankable projects through stronger screening frameworks and support faster environmental clearances to prepare for the next investment cycle.

It also called for deeper debt capital markets by mobilising institutional capital, including funds from EPFO and insurance companies, to broaden financing options for corporate investment.

(KNN Bureau)