For sometime now, I am firmly of the opinion that corporate balance-sheet are very strong and they are financially armed to unfurl capex cycle. Many trigger exist for start of capex cycle. Banking sector balance-sheet is much more stronger to complement the investment requirements. Incidentally, on 16th Dec, 2021, the RBI placed on its website a Working Paper titled “Reassessing Investment Dynamics – Newer Insights into Leverage and Investment of the Indian Corporate Sector”. The Paper is authored by Deba Prasad Rath and Sujeesh Kumar.
The key findings emanating from the study are as follows:
         i.       Based on the annual account data of non-government non-financial companies for the period 1980-81 to 2018-19, it is found that financial variables have a greater role in determining the investment dynamics of the Indian corporate sector;
        ii.       A model-driven estimate of a threshold for Indian corporate leverage – estimated at around 60 per cent for debt to equity ratio and 28 per cent for debt to asset ratio, beyond which corporate leverage drags growth. With current readings at 48 per cent and 19 per cent respectively for debt to equity and debt to asset ratios, these indicate a space for further corporate borrowing which will lead to higher investment and growth;
      iii.       Cash holdings of the companies have a negative impact on fixed investment, implying cash holdings not to be realizing into fixed assets; and
The business expectations of the corporates and economic policy uncertainties are seen to have a significant impact on India’s investment process.