Equity Rush, Capex Halt, Bond’s Lure: Which strategy will the company choose in market corrections?
The market’s upward trajectory seems unstoppable due to Covid lows, with a siren song luring companies away from the stable anchor of capital expenditures.
Data from the Centre for Monitoring India’s Economics (CMIE) covers more than 3,000 non-financial listed companies, indicating that by the first half of 2024-25 (April 2024 to April 2024 to July 2024), net fixed assets (CAPEX agents) have dropped year by year to 4.7% (end March 2024).
Meanwhile, double-digit growth in corporate investment in financial instruments such as stocks and debt securities, significantly surpassing capital expenditure investments during this period.
Experts believe that the shift is largely a result of weak demand and consumer spending. “Without widespread consumption increases, companies tend to invest their surplus in financial instruments,” said Madan Sabnavis, chief economist at Varodata Bank.
Furthermore, investment gear has been tight due to ongoing global uncertainty.
CMIE’s project tracking database shows the contraction period for new private projects over the past two years. In the first three months, new investments announced a decline of more than 10% in the December quarter.
“In view of the uncertainty surrounding geopolitical developments, domestic consumption, especially urban and export demand, the private capital expenditure cycle has been limited in the recent past,” said Sakshi Suneja, vice president of corporate ratings and vice president of corporate ratings at ICRA Ltd.
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Strategic Change
This transition is not sudden, but a calculated pivot. The year-on-year growth trend shows that the gap between physical and financial investment is growing, which widened significantly when the market peaked in September.
According to Sabnavis, this investment in financial instruments is not driven by potential returns, but simply because there is no sufficient reason to invest in physical capital. “So market conditions do not significantly affect this decision,” he said.
Anirudh Garg, partner and fund manager at Invasset PMS, said the company is adopting bright strategies and capital allocations for assets that maximize returns rather than locking resources into long-term projects. “The focus has shifted to financial prudence, strategic investment and maintaining liquidity rather than large-scale expansion of manufacturing capacity,” Garg said.
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Capital investment is expected to remain limited until the demand engine roars back to life. Piramal Group chief economist Debopam Chaudhari cited a survey by the Reserve Bank of India, saying that the capacity utilization of manufacturing has reached a level that justifies expansion. But the company remains hesitant due to U.S. President Donald Trump’s turbulent position on tariffs, gentle domestic demand and high capital costs.
As red and capacity utilization peaks in the market, private capital expenditures may gradually pick up, providing improvements in domestic conditions and immediately crystallizing on tariffs. Chaudhari expects CAPEX to resume in the second quarter of 2025-26 (July to September 2025).
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Plan b
While there is hope for capital expenditure, what happens to financial instruments in a sharp market correction? Will the investments that were once publicized lose their luster?
Since the highs expanded in September, total stocks in the corporate sector have dropped by 10%, which is clearly obvious, reflecting losses and asset disposals marked to the market. Foreign portfolio investors also saw their holdings drop sharply, and their assets fell to ₹February 62.38 trillion ₹September was $77.96 trillion, down nearly 20%.
Since the capital expenditure revival may be a few months away, what will be next for Indian companies?
Atul Parakh, CEO of Fintech Platform Bigul, said the bonds could trigger appeals.
“With the volatile stock market, companies are increasingly stopping at prices for corporate bonds, debt mutual funds and REITS/Invits, which have a steady return of 9-14%,” Parakh said.
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