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Most of the high-frequency capital expenditure (capex) indicators are at or above pre-covid levels, as per latest analysis by brokerage firm Nirmal Bang Equities

For instance, capital goods imports are 13.6% above pre-covid levels seen in October 2019, although domestic capital goods production remains sluggish. Central government capex, which dipped on account of the second covid wave, has witnessed a rebound and bank credit to the infrastructure sector is seeing a slow but steady pick up, it said in a report. Bank credit to the infrastructure sector is being led by lending to the airports and roads sectors, partially supported by the government’s capex push.

In terms of new capex intentions, metals is the clear leader, accounting for over a fourth of private corporate capex flows, helped by the global commodity cycle. Metals are followed by electrical equipment, chemicals and fermentation-based products all of which are aided at least partially by the production linked incentive scheme, added the report.

Analysts at the domestic brokerage house also point out that companies across sectors continue to deleverage, which in their view is laying the ground for an eventual capex recovery. The debt to equity ratio of the listed corporate sector (aggregating across 25 sectors) moderated to 0.37% in FY21 from 0.53% in FY20. Leverage across sectors is below long-term average, except in the textiles and commercial vehicle sectors. Apart from that, the interest rate environment remains favourable for private capex.

Meanwhile, investors should note that the operating profitability of BSE Capital Goods companies has also witnessed a turnaround, although profitability growth slowed to 46.21% YoY in 2QFY22 from 135.1% YoY in 1QFY22 on account of margin pressure, weighed down by rising raw material prices and a higher base, added the Nirmal Bang report.

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