Segments such as fast-moving consumer goods and consumer durables are likely to see higher investments due to continued domestic demand momentum, which has increased capacity utilization. “With the government’s positive reform agenda and capital investment-led momentum being maintained by the state and central governments, India Inc is expected to continue climbing the ladder,” said Paras Jasrai, associate director at India Ratings and Research (Ind-Ra).Besides the GST renewal, recent policy changes include new labor laws, a recast of the Rural Employment Guarantee Scheme, insurance reforms and opening up nuclear power to the private sector. “Money flow into the commercial sector has also increased due to the easing of policy by the RBI (Reserve Bank of India),” said Gaura Sengupta, chief economist at IDFC First Bank.
Increase in new projects
Earlier this month, the RBI’s Monetary Policy Committee cut the policy repo rate by 25 basis points to 5.25%, taking the total cut to 125 basis points by 2025.
This, together with softer retail inflation – averaging 2.3% in 2025 through November compared to 4.9% in the same period last year – is expected to support demand and encourage investment. Together, these factors are likely to support economic growth in 2026, which is expected to be around 7%, economists noted.
In September, the GST Council approved a two-slab structure of 5% and 18%, reducing rates on several household items.
“Automotives, consumer durables, renewables, FMCG, GCCs (global capability centres), electronics and EVs are areas where there is positive momentum,” said Sakshi Gupta, chief economist at HDFC Bank. “Private investment in these sectors is likely to look better regardless of uncertainty over trade deals, as this is largely a domestic market force.”
Economists believe that an improvement in capacity utilization is likely to support a rebound in private capital investment, and there are early signs of this. The occupancy rate increased to approximately 75%, indicating stable economic activity.
Private capital expenditure rose 11% to ₹9.4 lakh crore in FY25 from the previous year, according to a CareEdge Ratings analysis of 1,899 listed non-financial companies. The order books of a representative sample of capital goods companies increased by 20.7% over the year.
CMIE data shows new project announcements rose to ₹14.6 lakh crore in the first half of FY26, or the six months to September, against ₹7.8 lakh crore in the same period a year ago.
“The robust backlog position of capital goods companies is expected to provide continued support to capex growth,” said Rajani Sinha, chief economist at CareEdge Ratings. “Sectors such as semiconductors, electronics and electrical equipment, EV components and base metals should see a strong increase in investments.”
Gross fixed capital formation, an indicator of investment, rose 7.3% in the second quarter of FY26, slightly lower than the 7.8% in the previous quarter.
Central government investments rose 32% to ₹6.2 trillion in the April-October period, compared to ₹4.7 trillion in the same period a year ago.
Investment risks
Uncertainty over the US trade deal continues to weigh on investment sentiment and the currency. The US has imposed a 50% tariff on India, including a 25% penalty for importing Russian oil. The two countries are currently negotiating a bilateral trade agreement (BTA).
Sengupta said export-related uncertainty could impact private investment, noting that the manufacturing sector has a strong correlation with export growth.
“The sector that is getting support from domestic demand is the services sector,” she said. “This sector is generally less capital intensive compared to the manufacturing and construction sectors.”
Sinha also flagged increased external economic uncertainties, global trade policy headwinds and overcapacity in China, leading to the consequent flooding of other markets such as India.
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