India’s capital goods sector is entering a prolonged phase of growth, supported by a strong public investment programme and an accelerating private-sector capital expenditure cycle, according to a new research note by PhillipCapital.
The brokerage believes the current capex upcycle could extend until FY32, driven by infrastructure spending, decarbonisation efforts and government-led manufacturing incentives. It argues that while public-sector investment continues to anchor demand, private companies are increasingly stepping up spending on energy transition and capacity expansion.
Infrastructure spending provides visibility
PhillipCapital points to the National Infrastructure Pipeline (NIP) as a key source of long-term visibility. Originally planned as a ₹111 trillion programme between 2020 and 2025, the pipeline was extended following pandemic-related disruptions. As of mid-2024, 21% of projects had been completed, while 46% were under implementation, offering steady execution opportunities for capital goods firms.
The government’s recent track record on meeting capex targets has further reinforced confidence. State-level capital expenditure has also emerged as a major contributor, growing at a compound annual rate of more than 15% over the past five years.
Private capex and new investment themes
Signs of a recovery in private-sector capex are becoming visible, the report said, citing rising industrial credit growth and improving capacity utilisation, which stood at 76% in early FY25. Once utilisation approaches 80%, companies are expected to accelerate fresh investment plans, particularly in steel, cement, power and oil and gas.
Alongside traditional industries, the brokerage highlighted a surge in “new-age” capex, driven by decarbonisation, renewable energy, green hydrogen, electric vehicles, data centres and semiconductor manufacturing. Large conglomerates such as Tata, Reliance, Adani and JSW are leading investments in these areas.
Stock preferences
In this environment, PhillipCapital favours diversified engineering companies, naming Larsen & Toubro as its top pick. ABB, Cummins India and BHEL are also rated positively, while Siemens is held at neutral due to valuation concerns. Thermax was rated sell, with the brokerage citing expensive valuations despite strong sector tailwinds.
