India Inc's capital expenditure appetite is under scrutiny as geopolitical turbulence and tariff uncertainty moderate, according to an analysis by Sai Prabhakar for The Hindu Business Line. The study of 1,002 companies (excluding BFSI and IT) over the decade FY17-26 shows that while sales growth has remained robust, fixed asset additions have decelerated sharply, pushing capacity utilisation to near-record levels.
Growth After a Lull
The fixed asset base (including capital work-in-progress) of the sample companies grew at a 9% CAGR from FY17 to FY26. However, year-on-year growth has been volatile, oscillating between 0% and 20%. The weakest expansion was recorded in FY21 (pandemic year), and the second-lowest in FY26 at just 4%, dragged down by trade tariffs and geopolitical tensions. This follows a strong 11% CAGR in FY22-25, mirroring the pattern seen before FY21, when a period of high capital addition (11% CAGR in FY17-20) was followed by a pandemic-induced slump. The analysis suggests that a similar rebound in fixed asset growth may be due.
Push and Pull for Capacity Expansion
Net sales growth has outperformed asset growth, with a 10% CAGR over FY17-26 and a stronger 14.6% CAGR in the post-Covid period (FY21-26). As a result, the asset turnover ratio (net sales / fixed assets) has risen to 1.65 times in FY26, approaching the decade's peak of 1.75 times recorded in FY23. Historically, when this ratio nears its upper bound, companies tend to ramp up capacity expansion to support further sales growth, which in turn lowers the ratio. The current level signals that existing capacity is being stretched.
| Metric | FY17-26 CAGR | FY21-26 CAGR | Notable Levels |
|---|---|---|---|
| Fixed Asset Growth | 9% | — | 11% in FY22-25; 4% in FY26 |
| Net Sales Growth | 10% | 14.6% | — |
| Asset Turnover Ratio | — | — | 1.65x in FY26; 1.75x peak in FY23 |
Financial Indicators Point to Need for Capex
The analysis highlights that without fresh investment, sustaining higher revenue and profit growth may be challenging for India Inc as a whole. However, the environment for capex differs from the post-FY21 period, when interest rates were low and government spending high. In FY27, interest rates may increase, potentially influencing corporate decisions. The recent ceasefire between the US and Iran has already led to a sharp decline in oil prices, offering some relief, but tariff negotiations—especially the long-awaited India-US trade deal—remain uncertain. The trajectory of interest rates and trade agreements will be key to watch as companies make capex decisions in FY27.
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