Morgan Stanley’s report: Indian economy at the cusp of an industrial capex cycle journey


The Indian economy is at the cusp of an industrial capex cycle journey, argues Morgan Stanley, as corporate balance sheets have undergone deleveraging and the health of banking system has been restored. Consumer demand is also expected to get a fillip with pandemic related restrictions are being relaxed gradually.

Morgan Stanley expects momentum in private capex to pick up in the coming months. The sustained pickup in end demand trends will mean a continued improvement in capacity utilisation, boding well for the capex outlook. Capital goods imports have yet to recover, but over the next 6-9 months the country should see further improvement in capex momentum.

According to Morgan Stanley, within the region, India stands out as it does not face the challenge of high debt and deterioration of demographics that many others are facing. “The promise of a strong structural story has always been there, but unlocking it has been a challenge in the past few years. For a strong and sustainable recovery, India needs to revive the private corporate capex cycle and achieve a lift-off in infrastructure investment,” said the foreign brokerage.

The country’s private corporate investment to GDP ratio has declined sharply from the peak of 17.8% of GDP in FY08 to 9.2% in FY21. An impaired banking system and a lack of end demand were the key reasons behind it.

Indeed, since 2013, India has not experienced a growth recovery that has been sustained beyond 18 months.

Even as the consumption growth in India had been constrained through January, there are signs of improvement. Moreover, India rode the Omicron wave relatively well compared to previous waves. Like the rest of the region, India’s exports have registered a 2-year CAGR of 12.5%, lifting the capacity utilisation ratio to 72%, which is in line with pre-Covid levels.