6 June 2024
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The Economy Observer
Capex Tracker: Corporate investments grow very slowly in FY24
Government and household capex healthy
For the sixth consecutive quarter in 4QFY24, real investments in India grew much faster than consumption. After a 6.9%
growth in FY23, real investments jumped 6.4%/8.9% YoY in 4Q/FY24, much higher than the growth of 3.4%/3.8% YoY in
real consumption (private + government). Further, nominal investments stood at a nine-year high of 33.3% of GDP in
FY24, compared to 33.0% of GDP in FY23. This regular
update
is intended to track India’s capex/investment trend and its
key drivers. Here are the key highlights:
Firstly,
the growth in government investments (Center + states) moderated to 12.0% YoY in 4QFY24, implying 26.7%
growth in FY24. The Center’s investments were largely flat in 4Q (vs. 15.6% YoY growth in 4QFY23), while states’ capex
rose 21.6% YoY in 4QFY24 (vs. +11.4% YoY in 4QFY23). Compared to an average of 3.6% of GDP in the 2010s decade, fiscal
investments were 5.2% of GDP in FY24, with a new peak for both the Center (at 2.7% of GDP) and states’ capex (at 2.6%
of GDP).
Accordingly, the government sector accounted for 16.5% of total investments in FY24, the highest since FY90 and up from
an average share of 11.6% in the 2010s decade. It also means that private investments (including public sector
enterprises, PSEs) grew only 6.1%/7.0% YoY in 4Q/FY24 vs. 10.2% in the 2010s decade.
Secondly,
using data on stamp duty and registration fees collected by states, our estimates suggest that household
investment (primarily residential real estate) contracted 1.2% YoY in 4QFY24, marking its first decline in 14 quarters. It,
however, grew 10.7% YoY in FY24, following an average growth of 29% during the past two years.
Lastly, as a residual, we find that corporate investment (including PSEs) picked up and reported 15.5% YoY growth in
4QFY24, the highest in five quarters. It, however, was much weaker at just 3.4% YoY in FY24 vs. ~21% growth in the last
two years. The share of the corporate sector, thus, likely contracted to a two-decade low of 42% of total investments in
FY24, compared to >50% in the pre-Covid years.
Overall, a strong residential property market holds the potential to boost economic activity, and the government’s focus
on infrastructure is commendable. However, weak personal income growth, high interest rates, fiscal consolidation, and
high economic uncertainties create vulnerabilities about the durability of the strong growth in investments.
For the sixth consecutive quarter in 4QFY24, India’s real investments (the sum of
fixed investments, change in inventories, and valuables) grew much faster than
consumption (private + government). After a 6.9% growth in FY23, real investments
jumped 6.4%/8.9% YoY in 4Q/FY24, much higher than the growth of 3.4%/3.8% YoY
in real consumption. Further, nominal investments stood at a nine-year high of
33.3% of GDP in FY24, compared to 33.0% of GDP in FY23
(Exhibit 1).
Exhibit 1: India’s investment rate at a nine-year high of
33.3% of GDP in FY24
Total investments* (% of GDP)
34.3
32.1
30.2
31.0
32.3
30.1
28.9
56.3
51.8
49.7
49.0
48.5
47.3
43.4
32.1
33.0 33.3
7.9
5.4
30.5
8.8
5.6
33.9
Exhibit 2: Share of corporate sector slid in FY24; that of
government picked up
Sectoral investments# (% of total)
Corporate
7.8
4.8
37.7
Household
7.5
4.7
7.1
5.3
39.1
Center
7.6
5.8
39.3
7.4
7.4
41.7
States
7.0
7.3
8.1
8.4
41.8
41.7
38.7
41.5
44.3
FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23 FY24
* GFCF + Change in inventories + Valuables
FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23 FY24
# GFCF + Change in inventories
MOFSL estimates
Source: Various national sources, CEIC, MOFSL
Nikhil Gupta
– Research analyst
(Nikhil.Gupta@MotilalOswal.com)
Tanisha Ladha
– Research analyst
(Tanisha.Ladha@MotilalOswal.com)
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.