Broad-based corporate capex recovery unlikely in FY26: India Ratings

Amid multiple headwinds and weak macroeconomic and microeconomic conditions, a sustained easing of banking system liquidity is necessary, the agency added

India Ratings on Thursday said that any broad-based or strong recovery in corporate capital expenditure was unlikely in the upcoming financial year 2026 (FY26) due to uncertainty of domestic and external demand.

 

The uncertainty is adversely affecting the overall corporate sector capex. Interest rates on credit are not the primary deterrent to decisions about capital expenditure, said Soumyajit Niyogi, director, core analytical group, Ind-Ra, in a webinar on the credit market outlook.

 

However, capex in pockets and sectors like cement, new age investment like data centre- energy transmission, logistics, metal sector will continue.

 

Cost of borrowing for most of the large and high-rated entities has inched up in FY25, however the deleveraged balance sheet has lessened the financial burden for the corporates. Volatile operating environment and uncertain aggregate demand has been the key deterrent for the Capex recovery, he said.

 

 

Growth in the Indian economy is estimated to slow to a four-year low of 6.4 per cent in FY25, falling short of the Reserve Bank of India’s (RBI’s) projection of 6.6 per cent, according to the First Advance Estimates of the National Statistics Office (NSO). RBI in its Monetary Policy review in December 2024 lowered growth estimate for FY25 to 6.6 per cent from earlier estimate of 7.2 per cent.

 

Rating agency said it expected FY26 to be the year of headwinds. Thus, the market and financing conditions will face volatility and exhibit moderately tight financing conditions. Key headwinds will include externalities, length and breadth of indebtedness in the retail lending space, volatile banking system liquidity, and domestic growth-inflation conundrums.

 

Amid multiple headwinds and weak macro and micro conditions, a sustained easing of the banking system liquidity is necessary. The uncertain outlook on near-term domestic growth and unstable global operating and financing environment do not augur well for financing conditions, especially for the financial sector, it added.