India's Private Capex To Bounce Back? JPMorgan Bets Big On THIS Sector Over CAGR Outlook

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.

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.

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.

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. The JPMorgan analyst has said that over 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.

"The structural opportunity is definitely there. The stocks have done quite well this year and in the past 3-5 years, but over past 1-2 months, there has been bit of profit-booking in some individual names. That makes valuations even more comfortable in a sector which is poised for growth," he said.

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 the new/clean energy side. A lot of it has been driven by very supportive government policy," said Tiwari on the sector's trend.

"Over the past one year, we have seen power demand slightly weak as compared to expectations. As a result of that, the demand for solar power has reduced. During the day, we have enough power and the system has now changed to ordering out FDI kind of projects," he explained.

The projects will keep happening but the demand for solar power projects is weak. "In order to cater to the peak power deficit during evenings, India has also started ordering out new coal-based plants. We're seeing more ordering going ahead. From here hybrid projects/coal based capacity will keep getting ordered out," said the analyst on the sector's demand.

JPMorgan views power as a structural growth opportunity in the medium term, despite some hiccups in terms of weaker demand in the short-term, according to Tiwari. Coming to the transmissions segment, the pace of award of transmission projects in India was very high last year.

"When awarding multiple projects, the execution does take some time to catch up. Rolling out the new government guidelines on ground is taking time, but that's a short term phenomenon. In the next 2-3 quarters, most issues will be resolved. Execution will pick up in the transmission sector," concluded Tiwari.