Indian conglomerates are poised to nearly triple capital spending to US$800 billion over the next 10 years from the previous decade, as they pursue growth while putting the economy on the path to a greener future, S&P Global Ratings said.
About 40 percent of their spending would be on new businesses, such as green hydrogen, clean energy, semiconductors, electric vehicles and aviation, S&P Global said in a report yesterday.
India’s largest business houses, including the Adani Group, Reliance Industries Ltd and Tata Group, are set to spend about US$350 billion in these sectors, analysts led by S&P Global director Neel Gopalakrishnan wrote.
Photo: Anindito Mukherjee, Bloomberg
The likely investments dovetail with a broader vision of India’s political leadership to wean the economy from its dependence on fossil fuels to power the economy. The South Asian nation — the world’s third-largest carbon emitter — needs US$12.4 trillion in investment to achieve its goal of reaching net zero by 2070.
Other conglomerates — such as the Birla, Mahindra, Hinduja, Bajaj and the Murugappa groups — would focus on their established businesses to “boost scale and profitability,” the report said, adding that about US$400 billion to US$500 billion of all investments are expected to go into existing businesses.
While countries such as the US and South Korea have a history of family-owned large business groups with outsized capital concentration holding sway over the local economy, conglomerates such as those led by Reliance Industries chairman Mukesh Ambani and Adani Group chairman Gautam Adani, Asia’s two richest men, continue to be very powerful in India and their growth has mirrored the Indian government’s policy priorities.
Conglomerates would be boosting their market share over the next few years, with these groups having a substantial advantage over their non-conglomerated rivals in capital intensive sectors, S&P Global said.
That path to growth is not free of risks. It is likely the businesses would face execution risk and rely heavily on borrowing with little promise that the new technology would pay off, the report said.
As absolute debt levels rise, firms would need to continuously strengthen their core businesses to maintain their credit profiles, Gopalakrishnan said, adding that any underperformance during the investment phase would likely hit credit metrics.
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