Foreign brokerage Jefferies sees Indian economy clocking robust 6-7 per cent GDP growth over the next 5-7 years, riding on the resurgence of a multi-year capex upcycle.
Any potential central government capex slowdown — due to likely 140 basis points fiscal consolidation over next two years — in the upcoming interim budget is not a worry and won’t hurt the broader capex cycle, Jefferies said in its report ‘India Outlook 2024’.
This is because the private capex (75 per cent of GFCF) is expected to pick up and this should more than offset, it added.
Strong tax collections and subdued social spending allowed the government to raise capex 3X over past five years. India’s capex (GFCF) to GDP ratio bottomed out in FY20 and has since risen by 270 basis points but is still 500-600 basis points lower than the previous peak seen around 2010.
Noting that India’s multi-year capex cycle has started unfolding, Jefferies report highlighted that all the three elements of the capex cycle (housing, corporate capex and government capex) are now firing and therefore the potential global slowdown should have limited impact on India.
Larger outlay
Interestingly, Corporate India has been pitching for larger capex outlay of at least ₹ 12-lakh crore in the upcoming interim Budget (2024-25) to support higher GDP growth on the contention that global economic slowdown is expected to be more pronounced this calendar year.
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India’s private sector wants the central government to continue with its capex-led growth strategy as seen in last three years when capital expenditure increased from 2.5 per cent of GDP in 2020-21 to 2.7 per cent of GDP in 2022-23.
For the current fiscal 2023-24, the Centre had budgeted a capex outlay of ₹10-lakh crore, nearly 33 per cent over the ₹7.5-lakh crore budgeted in the previous fiscal.
Till November-end of this fiscal, Centre’s capex rose 31 per cent to ₹5.9-lakh crore in April-November 2022.
NIFTY @24000
Jefferies, which sees Nifty50 year end target at 24,000, highlighted that foreign investor positioning on India is light and calendar year 2024 should see greater inflows.
“Nifty is now 20x 1-year forward— higher than the past 10-year average, but relative to EM (ex-China) the premium at 67 per cent is only somewhat higher than historical average.
“Also on PEG basis, Indian market appears reasonable. December 2024 Nifty target of 24,000 implies 12 per cent total return and assumes current multiple to sustain helped by 12 per cent EPS CAGR and strong flows,” said the Jefferies report.