India’s economic trajectory, with a projected GDP growth of 6.4% in FY25 and a goal to become a $5 trillion economy by 2027, offers compelling opportunities for investors. The Union Budget 2024, announced on July 23, 2024, allocated ₹11.11 lakh crore (3.4% of GDP) for capital expenditure (capex), reinforcing infrastructure, manufacturing, and renewable energy as key growth drivers. Post the 2024 elections, the government’s focus on policy continuity, fiscal consolidation, and energy transition creates a robust investment landscape. Drawing on insights from Hemant Kanawala and recent data, this guide outlines strategies for retail and HNI investors to capitalize on India’s capex cycle, emphasizing infrastructure, manufacturing, real estate, and renewable energy.
Economic Agenda and Policy Continuity
The National Democratic Alliance (NDA) government, re-elected in 2024, continues its decade-long reforms to drive investment-led growth. Key policies include:
- Supply-Side Reforms: Lower corporate tax rates (22% for existing companies, 15% for new manufacturing units), Production Linked Incentive (PLI) schemes (₹2 lakh crore by 2026), and GST formalization.
- Regulatory Frameworks: Insolvency and Bankruptcy Code (IBC) resolved 3,135 cases by Q1 2025, recovering ₹3.2 lakh crore. RERA enhanced real estate transparency, with 1.3 lakh projects registered by 2024.
- Trade and Investment: Free Trade Agreements (FTAs) with UAE and Australia, with UK and EU negotiations ongoing, boosting FDI inflows to $83 billion in FY23.
- Fiscal Consolidation: Fiscal deficit targeted at 4.5% of GDP by FY26 (from 5.6% in FY24), supported by ₹28.37 lakh crore in tax receipts.
Investor Action: Monitor FTA developments and DPIIT-recognized startups for tax exemptions and IP rebates within 60 days of investment.
Macroeconomic Stability
India’s macroeconomic fundamentals support long-term investment:
- Inflation: CPI projected at 4.5% in Q4 FY25 (down from 5.6% in Q3), within RBI’s 4% ± 2% target.
- Fiscal Deficit: Estimated at 4.8% in FY25, improving to 4.4% in FY26, aided by RBI’s ₹2.11 lakh crore surplus transfer.
- Forex Reserves: $700 billion in Q2 2025, stabilizing the rupee despite a 2.2% current account deficit by FY30.
- Growth: Real GDP growth at 6.4% in FY25, with nominal GDP at 10.5%, driven by domestic consumption and infrastructure.
Investor Action: Allocate 20–30% of portfolio to defensive sectors like FMCG and IT for stability, adjusting within 90 days based on RBI policy updates.
The New Capex Cycle
India’s capex cycle, revitalized after a decade of 3–4% growth (2013–2018), is driven by government and private investments:
- Government Capex: ₹11.11 lakh crore in FY25 (up 11.1% from FY24), with a 38.8% growth over five years in roads, railways, and defense.
- Private Capex: Surged 66% in FY24 to ₹6.56 trillion, with manufacturing and utilities leading. Despite a projected dip to ₹4.89 trillion in FY25, it exceeds pre-2023 levels.
- Gross Fixed Capital Formation (GFCF): Rose from 28% of GDP in FY21 to 34% in FY24, projected to hit 36% by FY27.
- State Challenges: Welfare schemes (0.7–0.8% of GDP) constrain state capex, with combined FY25 capex at 4.9% of GDP (below 5.4% budgeted).
Investor Action: Invest in capex-driven sectors like capital goods (e.g., L&T, BHEL) and infrastructure (e.g., IRB Infra, KNR Construction) within 6 months, targeting 15–20% portfolio allocation.
Key Investment Opportunities
1. Infrastructure and Capital Goods
- Context: ₹11.21 lakh crore allocated for FY26 capex, focusing on roads (₹5 lakh crore under Gati Shakti), railways (17 new Vande Bharat trains), and metro networks (945 km operational).
- Opportunity: Capital goods firms like L&T (EPC giant) and KEC International (railways, T&D) benefit from order book growth (20% YoY in Q2 FY25).
- Example: IRB Infra’s BOT model secured ₹10,000 crore in projects in 2024.
- Action: Invest in ETFs like Invesco India PSU Equity or direct stocks (e.g., L&T, Siemens) for 15–25% returns over 3–5 years.
2. Manufacturing and PLI Schemes
- Context: Manufacturing’s GDP share to rise from 14% to 20% by 2030, driven by PLI schemes in electronics, EVs, and pharmaceuticals. FDI in manufacturing grew 103% YoY in April–August 2024.
- Opportunity: Companies like Mahindra & Mahindra (EV focus) and Dixon Technologies (electronics) benefit from PLI incentives.
- Action: Allocate 10–15% to manufacturing-focused mutual funds (e.g., ICICI Pru Manufacturing Fund) within 90 days, targeting DPIIT-recognized firms for tax benefits.
3. Real Estate
- Context: Household capex (37% of total) drives residential and commercial real estate, with sentiment boosted by RERA and low interest rates (6.5% repo rate).
- Opportunity: DLF and Godrej Properties reported 20% YoY sales growth in Q2 FY25. REITs like Embassy Office Parks offer 6–8% yields.
- Action: Invest in real estate mutual funds or REITs for 10–12% annual returns, reallocating from low-yield properties within 6 months.
4. Renewable Energy
- Context: India targets 500 GW renewable capacity by 2030 (from 186 GW in 2024), with ₹1.4 billion allocated for solar, wind, and green hydrogen. Coal’s share to drop from 72% to 58% by 2034.
- Opportunity: Companies like Suzlon Energy (wind) and NTPC (₹18,000 crore capex) lead the transition.
- Action: Invest 10–20% in renewable-focused ETFs (e.g., VanEck India Growth Leaders ETF) or stocks like Adani Green within 6 months.
Challenges and Strategic Considerations
- Challenges:
- Election Slowdown: Q1 FY25 capex growth slowed to 16.9% due to Model Code of Conduct.
- Private Capex Volatility: FY25 private capex projected to dip to ₹4.89 trillion due to global uncertainty.
- Welfare Spending: State schemes (₹460 billion in Maharashtra) limit capex.
- Solutions:
- Focus on long-term holdings to mitigate short-term volatility (e.g., 3–5 years).
- Diversify across sectors to manage risks, allocating 20% to international ETFs via DTAAs.
- Leverage RBI surplus (₹20,000–30,000 crore) for capex stability.
Conclusion
India’s capex cycle, fueled by ₹11.11 lakh crore in government spending and a 66% private capex surge in FY24, offers robust investment opportunities in infrastructure, manufacturing, real estate, and renewables. Policy continuity, fiscal consolidation (4.5% deficit by FY26), and macro stability (4.5% inflation) create a favorable environment. Investors should allocate 15–20% to capital goods and infrastructure, 10–15% to manufacturing, 10–20% to renewables, and 10–15% to real estate within 6–12 months, leveraging DPIIT benefits and DTAAs for diversification. Patience is key—hold investments for 3–5 years to ride out volatility and capitalize on India’s growth to a $7.5 trillion economy by 2031.
Disclaimer: This article is for educational purposes and does not constitute financial or legal advice. Consult certified advisors and verify details with DPIIT or tax authorities.