For India Inc, hope springs eternal. If 2023 started with a hope of revival, growth and a pickup in private capital expenditure, the mood of corporate leaders before the world ushers in another new year is upbeat. Most have figured out uncertainty will remain the only certainty, but more importantly, have taken it in their stride.
The optimism at the beginning of 2023 wasn’t without reason. Businesses had faced disruption in 2020 and 2021. Just when things started to look up, Omicron, a new strain of Covid, surfaced towards the end of 2021, leading to a sombre mood in the initial months of 2022. That the new strain was not lethal and vaccination was an effective check would have helped, but the onset of the Russia-Ukraine conflict upset the supply chain management of companies across sectors and inflationary pressures rose.
This was evident from the performance of India Inc during the July-September quarter. Net profit growth surged to an eight-quarter high of 41.4% for a sample of 3,573 companies compared with the same period a year earlier. This was largely on the back of a good show by automobiles, cement and metal companies with a domestic focus. Revenues, though, expanded in single digits as consumer goods companies faced volume pressure and IT companies continued to struggle for growth. Lower commodity and fuel prices, coupled with companies cutting costs helped expand profit despite the muted revenue growth.
Analysts maintain that the future trend will depend upon factors such as the extent of inflationary pressure, interest-rate scenario, global geopolitical developments and the trend in government expenditure ahead of general elections in 2024.
While this is the broad scenario, two major challenges which persisted in 2023 — slow pace of private investments and poor recovery in rural markets — will continue to be the major challenge in 2024. However, members of India Inc exude confidence on both fronts.
According to Anish Shah, CEO and managing director, Mahindra & Mahindra, who took over as Ficci president earlier this month, the industry has gone through several global challenges, which could have resulted in certain sectors being more careful around investments.
“Some sectors are investing heavily. If I take the example of M&M, we’ve doubled SUV capacity already and we’re putting in more capacity. Steel industry has put in more capacity. We are seeing demand across multiple industries now, whether it’s for holidays and hotels or for real estate; we started to see greater capacity coming in there as well,” he told FE.
According to Shah, sometimes there’s a lag. “If you look at it from a medium-term standpoint, I think the private sector will have equal or even greater participation as we go forward in overall capex,” he said.
According to Mohit Malhotra, CEO, Dabur India, urban markets have been the drivers of growth in 2023, boosted by new-age channels like modern trade and e-commerce. “While green shoots of recovery are visible in rural India, the demand growth is still trailing urban markets. That said, we are hopeful rural markets will post a strong recovery in the new year. We are already seeing the gap between rural and urban growth shrinking,” he said.
Malhotra said Dabur has invested ahead of the curve to enhance its distribution footprint in the hinterland. “We are looking at both urban and rural markets to drive growth in 2024. In the urban markets, where expansion is driven by e-commerce, modern trade channels, and expansion of mini metro and Class I towns, we are focusing on premiumisation with large pack sizes,” he said.
R Dinesh, president, CII, and chairman of TVS Supply Chain Solutions, is more upfront. “We can’t have 11% investment growth in the second quarter (Q2FY24) happening without some significant form of private sector capex. For three continuous quarters, we have had between 75% to 95% capacity utilisation. This is not just in three or four sectors, it has happened literally in every sector,” he said. This kind of capacity utilisation, some anecdotal evidence, and a focus on increasing spending, gives him the confidence that private sector investment will accelerate further.
Such positive sentiments cannot be overlooked, but certain pain points will continue to plague industry in the new year. The information technology sector is one of them. The subdued first quarter performance by Accenture, and one of its weakest revenue growth guidances, has dashed all hopes of an early recovery for domestic Indian firms. Earlier, analysts were hoping for a revival in 2024 on the back of more spending by businesses as a result of the Fed’s latest policy review hinting at least three rate cuts in the year.
Rural demand is another area which continues to be a worry. While passenger vehicle sales have surged during the year, two-wheeler sales remained under pressure for most part of the year. The latter showed signs of recovery only during the festive season , and the big question remains whether the momentum will be maintained in the new year. Tractor sales have also been poor during the year and M&M’s Shah expects them to be flat, even slightly negative this fiscal.
Elsewhere, signs of a K-shaped recovery are visible in almost all the consumer sectors. “We have seen an element of K-shaped recovery, which is why inclusive growth becomes a very important aspect for us,” Shah said.
Of course, the biggest factor which may define the course of 2024 will be politics, as the general elections will be held during the year. The regular Budget, which will be presented after a new government is sworn in, will in many ways act as a bulwark for private capex in the years ahead. Shah best summarises India Inc’s hopes: “The last two Budgets were very positive, as economics was at the forefront much more than politics. While we do recognise the realities of politics, we hope that economics continues to stay as much at the forefront as possible.”