Rising 'Animal Spirits' In The Two Major Growth Engines Of The Capex Cycle: ICICI Securities
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ICICI Securities Report
Household sector and private corporates dragged down investment rate since FY12:
As per the national accounts statistics 2022, nominal gross fixed capital formation (GFCF) grew at a CAGR of 6.5% since FY12 to reach Rs 52.6 trillion in FY21, thereby underperforming nominal GDP which grew at a CAGR of 9.5% over the same period.
Household sector and private corporates contributed the lion’s share of 74% to GFCF in FY21, although down sharply by 500bps since FY12 when they contributed 79%.
Further break up reveals that the share of ‘real estate within household sector’ and ‘capex of industrial corporates’ to GFCF dropped significantly over FY12-FY21:
Contribution of real estate (dwellings, other buildings and structures) within household sector to GFCF fell drastically by 1,200bps from 37.4% in FY12 to 25.4% in FY21, while contribution of industrial sector corporates (manufacturing, utilities, commodities, construction) to GFCF fell 700 bps from 21% in FY12 to 14% in FY21.
Investment rate supported by corporates in the services sector, government capex and other capital assets within household sector:
On the other hand, the fastest growth in GFCF within private corporates emanated from services sector (Communications, IT and other services), which almost doubled their contribution to GFCF since FY12 to reach 20% in FY21.
Share of other capital assets within households excluding real estate rose 600bps since FY12 to reach 14% in FY21.
Government’s share of GFCF rose sharply from 10% to 16% during the decade from FY12 to FY21 and we expect it to rise further over FY22-23 going by budget estimates. The share of PSU companies has remained constant at the 10-11%.
After the decadal downtrend since FY12, rising animal spirits towards investments visible within private corporates in industrial sectors and household real estate.
Top picks from an industrial investment cycle and real estate cycle perspective listed in the report.
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