India’s Private Capex To Bounce Back? JPMorgan Bets Big On Defence Sector
India’s infrastructure capex is on the cusp of a major boost ahead of the upcoming Budget 2026, after a healthy growth between 2021-2024 led by the government’s allocation. According to global brokerage JPMorgan, the country’s private capex cycle may bounce back soon with the sought-after defence sector poised for a 10-12% CAGR growth in the next 10 years.
Exclusive Interaction with JPMorgan
In an exclusive interaction with NDTV Profit on Wednesday, Dec. 17, Atul Tiwari, Head of Industrials, Electronic Utilities and Infrastructure Research at JPMorgan said that the brokerage sees that valuations are ‘comfortable’ for the defence sector after a recent bout of profit-booking in some stocks. Tiwari maintains a ‘neutral’ to ‘underweight’ view on industrials.
Government Capex and Private Corporate Capex
According to Tiwari, as far as government capex is concerned, after a healthy growth between 2021-2014, there has been some consolidation over the past one year. ‘From here onwards, we believe that government capex should be able to grow in line with nominal GDP,’ he said. This year however, the YoY growth is quite strong so far but that’s because of low base from last year. ‘The key event here is budget and we expect the government to pencil in capex growth in line with nominal GDP growth next year,’ said Tiwari. Private corporate capex has also slowed down.
Defence Sector: A Strong Structural Growth Opportunity
The government has given consumption stimulus over the past 6-9 months and that is reviving demand in some key sectors in the economy. ‘We expect a demand pick-up next year and corporates to raise the capacity. That will lead to private corporate capex cycle bouncing back,’ claims Tiwari. Defence is a very strong structural growth opportunity and being driven by geopolitical necessity, government policy as well as increasing allocation towards the defence capex, according to Tiwari.
Utilities and Alternative Energy Sector
The JPMorgan analyst has said that over the next two decades India’s defence capex growth will ‘easily be in the base case of 10-12% CAGR and possibly even higher’. According to the analyst, companies with the right set of capabilities to tap into the opportunities will grow faster as the government is focusing on substituting imports with domestic manufacturing of defence equipments.
Conclusion
Coming to industrials, JPMorgan maintains a fairly neutral view partly because the slowdown will take some time to pick up pace. ‘While we are positive on the capex growth over the medium term, but we need to see a few more data points to get more constructive on this space. As far as the broader valuations are concerned, most of them are still on the richer side, so we have a neutral/underweight view on industrials,’ he said.
According to the JPMorgan analyst, utilities and alternative energy sector has seen quite a bit of growth over the past 5-8 years in terms of installed capacity and capex being incurred. ‘Growth has been seen both on thermal and new/clean energy side. A lot of it has been driven by very supportive government policy,’ said Tiwari on the sector’s trend.