Will private sector capex pick up in FY22?

Capital expenditure (capex) in the financial year 2021 was mostly led by the government, as private sector spending was delayed with covid-19 hitting business operations. However, analysts at Bank of America (BofA) Securities estimate a pick-up in private capex from FY24 onwards. They expect order flow growth in FY22 and FY23 at 14% and 8% respectively, mainly led by government-funded infrastructure.

“We expect a further step-up in growth from FY24 once private sector capex accelerates as monopolies are opened. We see India on the cusp of a multi-year capex cycle, similar to that in FY03-12,” BofA said in a note on 15 March.

BofA believes the upcoming capex upcycle will be initially led by central government and PSU spending. The recent decisive and growth-focused budget with special emphasis on infrastructure, is a clear sign of the government’s view of easing India’s long-term structural supply side constraints versus prioritizing demand-side stimulus. BofA sees over 20% year-on-year (y-o-y) ordering growth from central governemnt and PSUs in FY22.