India's Private Capex Cycle Finally Ignites as Corporate Lending Surges
Jefferies reports a surge in corporate and SME lending, signaling that India's private sector capital expenditure cycle is finally gaining momentum.
The long-anticipated private capex cycle India has been waiting for appears to be gaining significant momentum. According to a recent report by global brokerage firm Jefferies, a combination of surging corporate lending, a spike in small business loans, and rising machinery imports suggests that investment activity in the private sector is on the rise.
Credit Growth Signals Business Expansion
A primary indicator of this shift is the robust growth in bank credit. By mid-September, bank credit growth climbed 18.1 per cent year-on-year. The data reveals a particularly strong appetite for borrowing among larger corporations and smaller industrial players.
- Corporate Loans: Recorded a substantial increase of 21.6 per cent year-on-year in August.
- MSME Lending: Loans to micro, small, and medium industrial enterprises jumped by 25.5 per cent.
Jefferies suggests that the acceleration in lending to smaller enterprises may be a direct result of labor reforms and Goods and Services Tax (GST) updates introduced late last year, coupled with ongoing efforts to enhance the ease of doing business.
Hard Evidence: Machinery and Capital Formation
Beyond the balance sheets of banks, the physical import of capital goods tells a story of industrial scaling. The report highlights a dramatic rise in machinery imports, which grew from USD 29 billion in FY21 to USD 62 billion in FY26, reaching USD 66 billion in the 12 months ending in August.
Furthermore, the annualised gross fixed capital formation-to-GDP ratio showed an upward trend, moving from 31.4 per cent (in the four quarters ending December) to 32.4 per cent in the four quarters ending June, further confirming the improvement in investment activity.
Economic Resilience Amid Global Turbulence
Despite the headwinds of energy challenges and geopolitical instability, India's economy has remained resilient, largely supported by strong domestic demand. Several key metrics underscore this stability:
- GST Collections: Receipts saw a 14.8 per cent year-on-year increase in August.
- Power Consumption: Power demand growth accelerated to 9.4 per cent between April and August, a sharp rise from the 1.8 per cent growth seen from January to March.
- Real Estate: Residential sales in the top seven cities grew by 7 per cent in the first eight months of the year, recovering from a 1 per cent decline in 2025.
The Road Ahead: Growth Projections and Emerging Sectors
Looking forward, Jefferies projects a nominal GDP growth of approximately 11-12 per cent for FY27. This growth is expected to fuel corporate earnings, with projections suggesting an acceleration from 14 per cent in FY27 to 17 per cent in FY28.
Six Sectors to Watch
The brokerage has identified six specific industrial areas poised for explosive growth, driven by a mix of government incentives and private sector interest:
- Space technology
- Semiconductors
- Solar manufacturing
- Data centres
- Electronics
- Aerospace