NEW DELHI: Capital expenditure growth by Corporate India could moderate sharply to just around 4% annually over the next two years, Moody’s Ratings said in a report on Monday, signalling a further delay in the long-awaited investment cycle and a serious blow to the country’s medium-term economic growth.
Between FY22 and FY26, capex by the non-financial corporate sector recorded a compounded annual growth rate of 11%. While large companies have appeared overly cautious and risk-averse in recent years despite strong cash flows, the situation could now worsen as earnings are also set to be hit, the report implies.
According to Moody’s, earnings growth for India’s non-financial corporate sector could slow significantly over the next 12–18 months. Rising input costs, supply-chain disruptions, rupee depreciation, and labour market uncertainty from rapid AI adoption will weigh on both demand and profitability.
Private investments, including from the unorganised sector, typically account for the bulk of India’s gross fixed capital formation (GFCF), though in recent years, these have ceded share to the government sector. Public investments have been scaled up to compensate for sluggish private capital expenditure, but the economy is still struggling to return to an earlier investment equilibrium.
The US-Iran conflict has sharply increased prices and tightened supplies of key imported commodities including crude oil, natural gas, LPG, and fertilisers, on which India is heavily dependent, Moody’s noted. When combined with sustained rupee depreciation, these pressures are pushing up energy inflation, eroding consumer sentiment, and curbing discretionary spending across consumer and industrial sectors, the report noted.
It, however, added that despite the slowdown in growth, investment activity will remain substantial in absolute terms, with rated companies projected to spend around Rs 4.6 lakh crore annually. New project timelines are yet being deferred and discretionary investments postponed, with the oil and gas sector continuing to account for roughly one-third of total capex.
“Continuing geopolitical tensions in the Middle East will prompt India’s nonfinancial companies to defer capital spending and delay execution of existing investment plans. Companies will likely prioritize liquidity preservation and balance sheet strength over capacity expansion over the next 12– 18 months,” the report noted.
Nevertheless, Moody’s believes overall credit quality will remain broadly stable, supported by significantly strengthened balance sheets. Aggregate debt/EBITDA for rated non-financial companies is estimated to have declined to around 2.5 times in 2025-26 from 3.9 times in fiscal 2020-21
Higher commodity costs are likely to passed through to end consumers, dampening demand, while companies unable to fully raise prices will suffer margin compression, the report noted. Both outcomes are likely to weigh on corporate earnings. Sectors such as airlines, automobiles, oil marketing companies, retail, hospitality, real estate, steel, metals, and cement are particularly exposed.
Prolonged supply disruptions are also reducing availability of fertilisers and cooking fuel, hurting farmers’ incomes and lower-income households. This is expected to weaken rural and semi-urban consumption, affecting fast-moving consumer goods, consumer durables, and services.
Adding to the challenges is the accelerating adoption of artificial intelligence and automation. While this promises long-term productivity gains, it is increasing job displacement risks and skills mismatches, especially in the services sector that accounts for nearly 60% of urban employment. The resulting uncertainty over income growth and employment is likely to encourage precautionary savings and further restrain household consumption.
Source: The Financial Express
