India's private capex not secular across industries, says HSBC's Malhotra

“We are seeing a lot more activity in the heavy industry sectors, whether it is roads, airports, renewables, logistics, highway, or port development. Even in the steel sector, most of the major players are going through capacity expansion," Amitabh Malhotra, head of global banking, HSBC India said in an interview. 

Despite a massive push by the government in the form of infrastructure investments aimed at drawing private investments, capex from the private sector has been off to a slow start. 

The previous financial year 2023-24 saw new projects worth ₹22.9 trillion announced by the private sector, down from ₹31.2 trillion in FY23, Mint reported on 1 April. This, it said, was primarily on account of the high base in FY23 arising out of Air India's announcement to purchase new aircraft of over ₹6 trillion. 

Asked if capex is limited to sectors that are being incentivized or pushed by the Centre, Malhotra said from a policy perspective, a lot of these growth sectors are where the government has come out with some positive initiatives and financial support. 

He cited electric vehicles and semiconductors as industries that have been in focus. 

Malhotra, who joined HSBC India in 2018, said that the cement sector is seeing limited capacity expansion, even though construction activity has increased, as capacity expansions have taken place ahead of the curve. 

“On the other hand, there are quite a few sectors where we have not witnessed any material growth in demand. Hence, I do not think we can apply the yardstick to all sectors," he said. 

“Our clients are stepping into new verticals and sourcing financing from us for these. We have also observed that clients are reviewing their existing capital mix with a view to optimize structures, cash flows and profitability; so, it is a mix of both new projects and refinancing of existing ones."

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Banks have been upbeat about corporate investments but Reserve Bank of India’s (RBI) data showed corporate credit growth finally picked up some pace only in the previous fiscal. 

In FY24, bank credit to industries grew 9% and outstanding loans stood at ₹36.8 trillion. This was higher than the 5.6% growth seen in FY23. 

Bankers believe that since their role is no longer limited to only giving credit on their balance sheets but extends to helping companies raise funds abroad and even investing in their bonds, credit demand in isolation does not capture the true demand. 

“Our credit growth is not limited to just the large conglomerates," said Malhotra. 

He said one of the fastest growing segments for HSBC India is where the anchor customer is a large conglomerate, but their supply or distribution chains are small businesses, where significant credit facilities are being utilized and capacities being put up. “This has a multiplier effect, and we have visibility of that."  

According to Malhotra, HSBC’s clients from sectors like the electronics industry, non-bank financiers, telecom, retail, energy, have seen “fairly active growth". 

“A sector which dovetails with our global strategic priorities is the clean energy sector or sustainable financing. While we haven't seen any financing in semiconductors yet, the handset industry has seen significant financing," he said. 

Analysts are skeptical of the banking industry’s expectations around corporate credit demand. India Ratings and Research said on 25 April that demand for industrial credit from corporates with capex plans will remain muted. This would be mainly driven by strong cash flows and flexibility to tap equity markets, it added.