Corporations within India hold an estimated Rs 5.09 trillion in cash, yet hesitant to commit to fresh investment ventures.
Indian companies are gearing up for a significant increase in new investments over the next five years, driven by strong profits, rising cash reserves, and supportive government policies. This investment surge, projected to double to USD 850 billion, reflects an ambitious expansion phase largely financed through internal funds and manageable debt levels.
Despite sitting on a large cash pile of Rs 5.09 trillion as of FY25, many companies have been cautious about fresh investments due to weak demand and policy uncertainty. This cautious stance is evident in a slight decline in new project announcements in FY24 and FY25, even though profits and cash reserves improved.
However, the outlook is increasingly positive. Sectors like power and transmission, aviation, and green hydrogen are expected to lead this investment wave, particularly renewable energy projects aiming for 500 GW capacity by 2030. India's M&A activity remains robust, with a rise in mid-sized strategic deals indicating ongoing corporate appetite for growth opportunities, particularly in healthcare, infrastructure, and financial services.
Industries such as cement, cables, paints, and healthcare have already seen a surge in M&A deals. Private capex is expected to outpace government spending in FY26, according to Pankaj Pandey, head of retail research at ICICI Securities. He also anticipates a recovery in FY26.
Companies are using cash wisely, with more focus on product innovation and business model reinvention rather than buying land or machinery. Firms are willing to experiment with technology to attract customers. This shift in strategy prioritises returns to shareholders over long-term capital expenditure.
Many firms have relied on cost cuts and price hikes to maintain profits rather than driving revenue through fresh investments. Dividend payouts rose by 11% to Rs 4.9 trillion in FY25, marking the highest in a decade. This dividend payout is higher than the 9.5% net profit growth in the same period.
The pause on reciprocal US tariffs ends on 9 July, and many firms are waiting to see how talks between India and the US pan out. Some companies are looking at alternate avenues like innovation and acquisitions to deploy surplus cash.
In summary, while India Inc has been cautious recently, the environment is set for a major boost in new investments starting now and growing strongly over the next five years, fueled by healthy balance sheets, robust cash flows, and government incentives to scale operations. This marks a transition from hoarding cash to deploying it into capital expenditure at a significantly higher pace as demand conditions and policy clarity improve.
- As the demand improves and policy clarity increases, Indian companies are shifting their focus from hoarding cash to deploying it into capital expenditure at a higher pace, marking a transition in their investment strategies.
- In contrast to driving revenue through fresh investments, many firms have resorted to cost cuts and price hikes to maintain profits, with dividend payouts reaching an all-time high of Rs 4.9 trillion in FY25.
- The growth in investments is expected to be driven by sectors like power and transmission, aviation, green hydrogen, healthcare, infrastructure, and financial services, given the robust M&A activity and the surge in mid-sized strategic deals in these sectors.
- As India's M&A activity remains robust, companies are looking beyond traditional methods of deploying capital, such as buying land or machinery, and are experimenting with technology and innovation to attract customers, prioritizing returns to shareholders over long-term capital expenditure.
