Corporate India's recent balance sheet numbers confirm that companies are prioritizing financial investments over capex amid uncertainty. Even as profits recover, they are investing in financial assets at twice the rate at which they invest in factories and machinery.
The shift underscores corporate caution as subdued domestic demand, moderate capacity utilisation, and geopolitical volatility keep a much-awaited broader private investment cycle on hold.
India Inc.'s net fixed assets grew 7% year-on-year in FY26, while capital work-in-progress, measuring projects under execution, fell 6%, Mint's analysis of data from 3,561 non-financial companies, sourced from the Centre for Monitoring Indian Economy (CMIE), showed. In contrast, investments in financial assets expanded 14%.
The gap widens over a longer timeframe, as the pace of fixed asset creation has slowed relative to pre-covid levels. Between FY17 and FY19, net fixed assets grew at an average annual rate of 11%, compared with just 7.5% between FY24 and FY26. Meanwhile, financial assets have grown at an average annual rate of nearly 15% since FY24, well above the pre-covid average of about 9%.
The divergence arises despite healthy earnings growth. Net profits of listed non-financial companies rose 10% year-on-year in Q3 FY26 and accelerated to 27% in Q4, indicating that companies are generating cash but deploying it more cautiously.
- India Inc.'s net fixed assets grew 7% while financial investments rose 14%.
- Capital work-in-progress declined 6%, showing fewer new industrial projects under construction.
- Company profits rose sharply, jumping 27% year-on-year in the fourth quarter alone.
- Acquisitions hit a record ₹2.02 trillion across nearly 1,700 deals in FY26.
- Overseas investment by Indian firms grew 28% annually between FY24 and FY26.
Economists attribute much of this caution to the prolonged geopolitical and geoeconomic uncertainty that has clouded investment decisions over the past four years. Tariff-led protectionism has disrupted global supply chains, while the West Asia conflict has raised energy and freight costs, squeezing margins and delaying expansion plans, said Vivek Kumar, economist at QuantEco Research.
"Trade agreements could provide a fresh impetus to private capex from next year, but geopolitical disruptions remain the biggest wild card for India's manufacturing and investment cycle," said Kumar.
Spare capacity
In fact, net fixed assets accounted for just 34% of total assets in FY26, down sharply from a peak of nearly 43% in 2012. Over the same period, the share of financial investments has climbed from 13% to 23%, the analysis showed.
The shift reflects that companies have little incentive to add new capacity, as existing facilities are largely sufficient to meet current demand.
India Inc.’s capacity utilization has remained broadly stable at about 75%, only marginally above its pre-pandemic average of 73%, according to a recent DSP Mutual Fund report. With enough capacity to spare, economists believe companies are likely to sweat existing facilities first until demand strengthens further.
"When there is uncertainty around domestic demand, companies naturally tend to go slow on physical investment," said Madan Sabnavis, chief economist at Bank of Baroda.
However, Sabnavis also noted that rising financial assets do not necessarily imply companies are merely parking surplus cash in liquid instruments such as bonds or mutual funds. They also include strategic investments in subsidiaries, mergers and acquisitions and overseas ventures, reflecting the increasingly global footprint of Indian companies.
While there is no direct evidence for companies preferring debt over internal accruals, bank credit to industries grew 15% year-on-year in FY26, the strongest in 13 years.
Shift in strategy
CMIE data shows that acquisitions by non-financial companies gathered pace sharply between FY22 and FY26, growing at a compounded annual rate of 30%. The trend culminated in a record FY26, when these companies completed nearly 1,700 substantial share acquisition deals worth ₹2.02 trillion.
Similarly, outward direct investment (ODI) by Indian companies grew by an average of 28% each year between FY24 and FY26, including a one-off surge of nearly 67% in FY25, according to data from the department of economic affairs. This marks a sharp reversal from the pre-pandemic period, when ODI contracted by 7% annually on average between FY18 and FY20, weighed down by a nearly 20% decline in FY19.
The shift suggests that Indian companies are more willing to back overseas expansion than commit fresh capital to domestic capacity.
However, the recent easing in geopolitical tensions following the West Asia peace accord could strengthen business confidence in the coming quarters, said Sabnavis. But he expects financial investments to dominate even as capex gradually revives.