PC - India Growth Story 2 - Nov 2022 20221121131637

INSTITUTIONAL EQUITY RESEARCH
India Growth Story 2.0

Multiple growth triggers = Flying Elephant 2.0
21 November 2022
INDIA | STRATEGY/MACRO | THEMATIC
Anjali Verma, Research Analyst
(+ 9122 6246 4115) anverma@phillipcapital.in;
Navaneeth Vijayan, Research Associate

nvijayan@phillipcapital.in
During covid times, we had said ‘’Public-capex push to be followed by private-capex push;
manufacturing, exports, GFCF will contribute higher delta to GDP – read our reports:
November2020, March 2021, titled Time for India’s Outperformance. From there to ‘’actual
rise seen in corporate + public capex and exports’’ has not been a long journey. While some
of the data is still not showing a clear uptrend, we believe there are newer structural factors
like PLIs, FTAs, alternate technologies/fuels, domestic demand, favourable government
policies, healthy balance sheets (BS) of consumers, corporates and banks – which will
continue to drive GDP higher (agri + industry + services; GFCF + NX + GFCE + PFCE) for years
to come. We are cognizant of the adverse impact of higher interest cost and global economic
slowdown in the near-term, but we believe any consequent correction in equities will be an
investment opportunity, considering India Growth Story 2.0 has started – many engines
firing simultaneously. We had written “A Flying Elephant Report in 2006” – Our long
journey!
Investment and exports, core growth drivers – the focal points of this report: After a long-
gap, the investment expansion cycle began in specialty chemicals, led by environmental curbs
in China, followed by demand-driven expansion in metals, cement, and capital goods. PLIs are
supporting consumer electronics, automobiles, pharmaceuticals, textiles, and
semiconductors sectors, while indigenization of defence has begun. 5G investments from
telecom and allied infrastructure are coming in while climate-change related investments
have kicked off. Meanwhile, infrastructure-related investment in logistics, supply-chain, ports,
and railways are ongoing, with expansion in e-commerce and data centres. Manufacturing-
expansion-led exports growth (to be tangibly boosted by FTAs) will push GDP to a sustainable
solid trajectory. All this shows that the India Growth Story 2.0 has begun and will continue to
see its next leg of structural evolution – to a developed economy from a developing one.
PC-Long-term Estimates: Combining centre+IEBR Capex, states capex, and Capex by 120
companies (RIL/Adani excluded) under our coverage, we estimate investment of Rs 65-75tn+
in FY23 and FY24; Rs 110tn in FY21-FY24 vs. Rs 75tn invested in previous 4-years (FY17-FY20).
Hereon, Real GFCF is expected to rise by 55tn+/annum vs. earlier trajectory of Rs
40tn+/annum. Annual Indian exports are estimated to touch US$ 500bn+ by FY26 vs. US$
300bn+ in FY18; US$ 380bn/440bn in FY23/24. Global slowdown in FY23 and FY24 will
adversely impact Indian exports for these years, post which we expect higher trends on
account of fuller benefits of PLIs and FTAs. We expect GDP to grow by 7-7.5 in the next 5-
years; FY24 around 6% assuming higher interest rates and global slowdown.
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STRATEGY/MACRO THEMATIC
Government policy and capex push – persisting and valuable growth triggers: The
Indian government has been on the capex path to support the economy through
conducive policies and spending. We expect this trend to prevail in the short, long, and
very-long terms. Incrementally, we have been expecting railways, ports, and defence
sectors to receive greater funds – and it is panning out just as expected. Asset
monetization and robust tax revenues will continue to support public capital
expenditure, in the long-run.
Private-sector capex expanding since FY22 and will progress: In line with our
expectations, with initial support from public capex during the recovery period from
covid, and appropriate government policies, private-sector capex picked up in FY22.
•Based on our analysis of 118 companies under our coverage, capex should grow 49%
in FY23 in addition to the 44% growth in FY22. Telecom, EPC, consumer durables,
cement, metals, oil & gas, and FMCG sectors are likely to be the key capex drivers in
FY23. Based on current projections for FY24, capex should be stronger in capital goods,
FMCG, pharmaceuticals, consumer durables and logistics; telecom will cool-off in FY24
as initial phase of 5G Capex tapers; Rs 5-6tn is likely to be invested in FY23-24. •Capex
for 289 NIFTY-500 companies is witnessing and estimated to register cumulative capex
of Rs 17tn in FY22-24E vs. Rs 12tn in FY17-FY19. •Combined orderbook of infra+capital
goods should grow 13%/9% in FY23/24. •CMIE capex data indicates that private share
in new capex has shot up to 93% in 1HFY23 vs. 74% in FY22 and 56% in FY21. • The 35%
peak rate of real GDP came from GFCF in Q1FY23.
PLIs – a crucial policy development: With an estimated outlay of around Rs 2.7tn over
the next few years, PLIs to 15 sectors are the perfect nudge that the government can
offer to induce capex, manufacturing, and exports, along with a reduction in import
dependency. PLI-driven projected private capex is Rs 4.9tn in the next 2-3 years, with
an employment opportunity for +2mn. The government may announce more PLIs in
the upcoming budget. With skilled manpower availability and improving infrastructure
and logistics, India can become a global manufacturing hub soon. To illustrate, PLI
incentives in mobile-phone manufacturing have substantially boosted production,
growth at 126% in FY22, 281% growth in exports, trade surplus at US$ 3.3bn in FY22
vs. marginal deficit in FY19.
PLI and FTAs – key catalysts for Indian exports: Currently, India contributes to only 2%
of global exports; China/US/Germany are at 15%/8%/7%. The Indian government’s
focus on promoting exports is evident through the extensive range of PLIs and FTAs
under negotiations. Historically, manufacturing and exports never received public
policy attention. Between 1998 and 2011, India signed 9 FTAs; after a lull of 10 years,
it has signed 3 FTAs (since 2021) while 4 are under discussion with large economies.
We believe that key exporting commodities will gain more momentum as PLI benefits
set in, and countries abide by treaties. Electronics, engineering goods, chemicals,
automobiles, textiles, food products (along with refinery products and iron & steel)
sectors can see renewed demand from exports in coming years; semi-conductors and
hydrogen will be new exporting segments, but there is a long way to go for that.
Risks: Prolonged global and Indian slowdown/recession, elevated interest rates in

India, government policy stagnation, domestic political instability, geo-political risks.
Stocks (Long-term beneficiaries of India Growth Story 2.0): L&T, ABB, Siemens, HAL,
BEL, Ultratech, ACC, Ambuja, HDFC Bank, ICICI Bank, Axis Bank, SBI, HDFC AMC, SBI
Life, Bajaj Finance, Chola, Tata Motors, TVS, Sona Comstar, Asian paints, Titan, HUL,
Trent, Shopper Stop, Jubilant Foodworks, Bharti, Divis, Sun Pharma, SRF, Praj
industries, Mahindra Logistics, Bajaj Electricals, KEI Industries, PGEL, Syrma, Tata
Power (NR), Power grid (NR), RIL (NR), Welspun India (NR), Adani Enterprise (NR).

India to outperform for a very long time…

According to IMF’s World Economic Outlook, global GDP growth will average 3.3%
during 2024-2027 from 2.7% in 2023 (monetary policy tightening). It estimates growth
in EMDEs (Emerging Markets and Developing Economies) at 4.3% during 2024-27 vs.
3.7% in 2023. India will be the bright spot among major economies with 6.1% growth
in 2023 followed by an average 6.6% growth during 2024-2027, but much higher than
growth in major developing countries, including China.
GDP growth: Select developing countries (%) GDP growth: Select developed countries (%)
EMDEs India China South Africa Russia World AE EU Japan UK US
Estimates
Estimates
20
10
15
5
10
5 0
0 -5
-5
-10
-10
-15
-15
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
2020
2022
2024
2026
1992
2006
1990
1994
1996
1998
2000
2002
2004
2008
2010
2012
2014
2016
2018
2020
2022
2024
2026
Source: IMF WEO October, PhillipCapital India Research
We estimate GDP growth of 7%-7.5% for FY23-FY27, (barring a dip in FY24 on account
of tight monetary policy), boosted by all the segments – agriculture, manufacturing,
financials and other services; GFCF, GFCE, exports, and consumption.
Trends in GDP and PC Estimates FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23PCE FY24PCE FY25PCE FY26PCE FY27PCE
Agriculture -0.2 0.6 6.8 6.6 2.1 5.5 3.3 3.0 2.7 3.5 4.0 4.0 4.0
Industry 8.1 11.9 8.4 6.1 4.9 -2.2 -1.8 9.8 4.2 4.5 6.6 7.0 7.9
Mining and Quarrying 9.7 10.1 9.8 -5.6 -0.8 -1.5 -8.6 11.5 4.4 5.0 6.0 6.0 7.0
Manufacturing 7.9 13.1 7.9 7.5 5.4 -2.9 -0.6 9.9 3.5 4.0 6.5 7.0 8.0
Electricity, gas and water supply 7.2 4.7 10.0 10.6 7.9 2.2 -3.6 7.5 8.5 7.0 8.0 8.0 8.0
Services 9.0 8.6 8.1 6.2 7.1 5.7 -7.8 8.9 9.4 7.5 8.0 8.4 8.4
Construction 4.3 3.6 5.9 5.2 6.5 1.2 -7.3 11.5 4.0 6.0 8.0 8.0 8.0
Trade, hotels, Transport & Communication 9.4 10.2 7.7 10.3 7.2 5.9 -20.2 11.1 11.4 8.0 8.0 9.0 9.0
Financing, Insurance, Real Estate & professional services 11.0 10.7 8.6 1.8 7.0 6.7 2.2 4.2 9.8 8.2 8.5 9.0 9.0
Public Admin, defense, other services 8.3 6.1 9.3 8.3 7.5 6.3 -5.5 12.6 9.1 6.5 7.0 7.0 7.0
GVA at Basic Price 7.2 8.0 8.0 6.2 5.8 3.8 -4.8 8.1 7.2 6.2 7.0 7.4 7.6
Source: PhillipCapital India Research, CSO

…to be supported by manufacturing…

While ongoing trends show positive momentum, these will get stronger ahead
• PMI – Strong Manufacturing PMI at 55+ and sustaining.
• FDI – Strong FDI flows in automobiles, chemicals, drugs & pharma, construction,
computer software & hardware; additionally, sectors like telecom, consumer
durables, etc., to pick up pace.
• IIP – Historically peak production in food products, chemicals, pharmaceuticals,
metals, and non-metallic mineral products, intermediate and infrastructure
goods.
• PLI – Incentives across 15 sectors (worth Rs 2.7tn) to attract capex of Rs 5tn.
• Corporate earnings – We estimate earnings of listed manufacturing companies
(220-odd) in FY25 is estimated to be 130%, higher than FY19; 6-year CAGR at 15%
vs. 7% in the previous six years. For a wider base (Indian listed companies:
1,300/1,800), 4-year earnings CAGR for FY18-22 at 14% vs. 9% for the previous 4
years.
Annual IIP growth (yoy, %) India PMI trend

15 PMI Composite Index Manufacturing Services
70
10
60
50
5
40
0 30
20
-5 10
0
-10
FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22
Source: CSO, IHS Markit, PhillipCapital India Research
…and exports
While exports will soften in the near term due to price adjustments and slowdown in
global economies, the long-term exports outlook is extremely bright for India,
considering a smaller base and steps taken by the government to induce Indian exports
– PLI and Free Trade Agreements (FTAs).
Global trade: Indian exports currently account for only 2% of global exports, while
countries like Vietnam, Indonesia, and Thailand, are slightly below India. Meanwhile,
China accounts for 15% of global exports, US 8%, and Germany 7%. This indicates that
there is huge potential for India, especially with the conducive policies that the
government is prioritizing in the last couple of years.
IMF estimates: IMF forecasts third-highest exports volume growth for India for the
next five years; Vietnam is on top, followed by Bangladesh. All other sizeable
economies are likely to record lower growth. These estimates are in line with our
expectations and thesis – that India has huge growth potential in exports, which will
be the incremental contributor to the country’s GDP.
Exports trends and estimates: Annual Indian exports are likely to touch US$ 500bn+
by FY26 vs. US$ 300bn+ in FY18; US$ 380/440bn in FY23/24. Global slowdown in FY23
and FY24 will adversely impact Indian exports for these years, post which we expect
higher export trends on account of fuller benefits of PLIs and FTAs.

PLI-induced exports: The government estimates US$ 30-40bn/annum additional

exports because of PLIs until 2027-30. Even assuming targets are not fully achieved in
the next couple of years, we believe PLI incentivization and schemes will add at least
US$ 10-20bn/annum.
FTAs – a new decade, new developments: In the last two decades, Free Trade
Agreements (FTAs) signed by India were with smaller Asian countries, accounting for
1-3% of India’s total exports. Empirically, it is evident that FTAs have boosted exports
with signatory partners (UAE – 3rd largest trading partner for India, Bangladesh – 4th
rank, Singapore – 6th rank, Nepal – 10th rank). The US, China, and EU nations are largest
exporting partners for India. PLI incentives and new FTAs with larger economies, like
the ones recently signed with UAE and Australia, and the ones under discussion with
the UK and EU, will be meaningful ones to propel manufacturing and export progress
in India. Additionally, PLI incentives will aid exports momentum with existing trading
partners. Combining PLI incentives and likely sectors that can gain from FTAs, we
expect electronics, engineering goods, chemicals, automobiles, textiles, food products,
refinery products, and iron & steel to see renewed demand from exports in coming
years; semi-conductors and hydrogen will also gain.
Indian annual exports, imports & trade balance (USD mn) IMF – global trade projections
China India United States
Trade Balance Exports Imports
Vietnam Bangladesh World
700000
Estimates
600000 40
500000
400000 30
300000 20
200000
100000 10
0 0
-100000
-200000 -10
-300000 -20
FY90
FY92
FY94
FY96
FY98
FY00
FY02
FY04
FY06
FY08
FY10
FY12
FY14
FY16
FY18
FY20
FY22
2016
2018
2020
2022
2010
2011
2012
2013
2014
2015
2017
2019
2021
2023
2024
2025
2026
2027
Source: Ministry of Commerce & Industry, IMF WEO, PhillipCapital India Research

Green shoots in the Indian investment pattern

GFCF at its peak!!
Investment is an essential aspect for the long-term economic prospects of a country.
For the last couple of years, we have been of the view that incremental contribution
to GDP in coming years will be from GFCF, exports, and manufacturing (Click here,
March 2021).
Share of GFCF (investments) to GDP increased to 32.5% in FY22 from 30.5% in FY21 (a
covid-driven low). While GFCF saw significant decline in FY21 due to the pandemic, the
positive investment sentiment prevalent at present should lead to much better
contribution to real GDP. This is evident from the highest-ever 35% share of GFCF in
GDP in Q1FY23.
Impact of higher interest rates on GFCF is adverse, and comes with a lag. Thus, if
interest rates in India remain elevated for long, capex expansion will be adversely
affected in the medium-term, but the long-term prospects remain positive and
expansionary. Additionally, at present, as we also do not expect elevated interest rates
to prevail in the long-run, we remain positive on India’s capex-expansion cycle.
GFCF and 10-year yield Share of GFCF in GDP (in constant prices, %)
Incremental GFCF (Rs Bn) GFCF YoY (%) GFCF (Rs Bn) GFCF as % of Real GDP
10 Yr G-Sec Yield (%) 60000 40
7000 23 50000 35
5000 18
40000
13 30
3000
8 30000
1000 25
3 20000
-1000
-2 20
10000
-3000 -7
-5000 -12 0 15
FY90
FY92
FY94
FY96
FY98
FY00
FY02
FY04
FY06
FY08
FY10
FY12
FY14
FY16
FY18
FY20
FY22
Source: RBI, CSO, Bloomberg, PhillipCapital India Research
Government capex push – to remain undoubtedly buoyant

The government had allocated 25% higher capex in FY23 over the 27%/39% capex
growth seen in FY21/22; 4-year CAGR was at 30% vs. 7% for the previous four years;
capex more than doubled from pre-covid levels. The government’s core focus is on
infrastructure development and economic progress through the multiplier effect.
Fiscal deficit is targeted at 4.5% by FY26, implying government capex will continue to
expand, and they are not in a hurry to tighten strings. Buoyant revenues, along with
asset monetisation, will offer substantial support to the government’s expansionary
capex plans. Public capex sets the tone for private capex as well, which also registered
buoyant growth after many years of stagnation.
• Capex allocation for FY23 was the highest in road transport (25%) followed by
defence capex (20%) and railways (18%).
• Road transport registered a 66% higher allocation in FY23 with defence and
railways at 10%/17% yoy growth.
• Defence capex allocations were the highest in FY20/21/22 at 33%/32%/23% share
while railways capex was second highest in FY21 and 22.
• Telecommunication share surged in FY23 due to BSNL’s capital infusion plans.

• Housing/atomic energy capex shared 4%/2% of the total capex in FY23, with lesser
spending on atomic energy.
• Focussed spend on infrastructure ministries like road and railways and higher
defence capex, with indigenisation plans, will help infrastructure and domestic
defence manufacturing companies.
Till September FYTD23, capex was at 46% of BE vs. 41% in the last year, registering
50% yoy growth. Among major capex-oriented ministries, road transport (65% of BE)
and railways (65%) saw strong capex spend in the first half of FY23 with 65%/91% yoy
growth. Atomic energy (43%) saw decent spend while defence capex (39%) and
housing (33%) were weaker. Housing capex was also weaker by 32% yoy.
Government capital expenditure (Rs bn, % of GDP)

Capital Expenditure (Rs Bn) Capital Exp (% of GDP)
8000 3.5
7000
3.0
6000
5000 2.5
4000
3000 2.0
2000
1.5
1000
0 1.0
FY17 FY18 FY19 FY20 FY21 FY22 FY23BE
Source: Union Budget Documents, CSO, PhillipCapital India Research
Annual capex of select ministries (Rs bn) Select ministries capex till September of respective FY (% of BE)
FY21 FY22 FY23 FY21 FY22 FY21 FY22 FY23
2000 80%
1800 70%
1600
60%
1400
1200 50%
1000 40%
800 30%
600
20%
400
200 10%
0 0%
Atomic Defence Road Railways Housing Atomic Defence Road Railways Housing Total Capex
energy transport energy transport
Source: Union Budget Documents, CGA, PhillipCapital India Research

State government capex: Following the central government capex trends, state
government also saw similar strong capex spend with 17%/28% yoy growth in FY21/22.
As per FY22BE, Uttar Pradesh (14%) saw the highest state share in capex, followed by
Maharashtra (10%), West Bengal (6%) and Telangana (6%). Increase capex was noted
from FY19-22 for Madhya Pradesh, Maharashtra, Kerala, Tamil Nadu and Delhi.
IEBR spending strengthened by 5% in FY22 while 7% decline was noted in FY23BE as

dependence on NHAI borrowing for roads capex was brought down to zero. IEBR was
highest for petroleum ministry (24%) followed by railways and PDS. IEBR in railways
should increase by 11% in FY23, while power sector saw 4%/5% growth in FY22/23BE
and renewable energy saw 100%/51% hike during the same period.
Combining Centre capex + IEBR + State Capex, Rs 7tn will be invested between FY22-
FY24 vs. Rs 4.3tn in FY17-19.
Cumulative state capex trend (Rs bn) IEBR expenditure trend (Rs bn)
State Capex YoY (%, RHS) 7000
12000 100.0 6000
10000 80.0 5000

60.0
8000 4000
40.0
6000 3000
20.0
4000 2000
0.0
2000 -20.0 1000
0 -40.0
0
FY00
FY02
FY04
FY06
FY08
FY10
FY12
FY14
FY16
FY18
FY20
FY22
FY17 FY18 FY19 FY20 FY21 FY22 FY23BE
Source: RBI, Union Budget Documents, PhillipCapital India Research
Total government capex trend- Centre+IEBR+State (Rs bn)

30000
25000
20000
15000
10000
5000
0
FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23BE FY24E
Source: PhillipCapital India Research

PLIs– just the beginning; execution under way

The government has announced Production Linked Incentive (PLI) schemes for 15
sectors, with certain schemes already in the production phase. Each scheme has a
different tenure. India should start reaping the benefits of these starting FY23 via
capex, employment opportunities, incremental production, and exports. With a total
government outlay of Rs 2.66tn, it expects capex to the tune of Rs 4.96tn in the initial
years of the project. More sector-based schemes are in the pipeline, which could
possibly be announced in the upcoming Union Budget in February.
PLI schemes announced and total outlay (Rs bn)

Sl No Sector Government Outlay Tenure Projected Capex
1 Semi-Conductor 760 FY23-28 1538
2 Electronics 386 FY21-26 110
3 Automobiles 259 FY23-27 749
4 Solar modules 240 FY22-27 1112
5 ACC Battery 181 FY23-28 450
6 Pharma drugs 150 FY21-29 150
7 Telecom 122 FY21-27 33
8 Food products 109 FY22-27 61
9 Textile 149 FY23-29 190
10 IT Hardware Products 73 FY22-25 25
11 Pharma APIs 69 FY21-30 37
12 Specialty Steel 63 FY24-31 396
13 White Goods 62 FY22-29 46
14 Medical devices 34 FY21-28 11
15 Drones 1 FY22-25 50
Total 2,660 4958
Source: PIB, Relevant ministries, PhillipCapital India Research
Looking at sector allocation, PLI for semiconductors and solar modules are forward
looking. Semi-conductors are critical for new-age electronics manufacturing and the
automobiles sector. Achieving self-sufficiency in manufacturing of these components
will help India to support production in associated sectors in a better way, and thus
aim to increase exports. Private-sector investment interest seen in most PLI scheme
applications indicate the initial success of the scheme.
Mobile phone trade (USD mn) Mobile phone production in India (Rs mn)
Export Import Net Exports 60000
8000 50000
6000
4000 40000
2000 30000
0
-2000 20000
-4000
10000
-6000
-8000 0
FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23TD FY20 FY21 FY22
Source: MOCI, MEITY, PhillipCapital India Research
One of the key success stories of PLI in India is evident in mobile phone manufacturing.
Production of mobile phones surged 126% in FY22, indicating that the PLI scheme has
already started contributing to Indian electronics manufacturing targets. With
increased production, trade also saw similar trends. Import dependence for mobile
phones declined by 33% in FY22, while exports saw a sharp 54% growth over weak
numbers in FY21. Trade surplus at US$ 3.3bn in FY22 vs. marginal deficit in FY19.This
stands as a clear indicator of the success that PLI schemes could deliver for the Indian
economy – via reduction in import dependence, by making India a hub for global
manufacturing, and supporting export-led growth.

PRIVATE CAPEX: Upturn!!!!

CMIE capex – private-sector clearly heading new capex from FY22
We have seen the private sector taking the lead in new project announcements even
in the past. However, from Q2FY21, the private sector has consistently outpaced the
government’s new projects – with an average 74% of the total new project value in
FY22. Private-sector new projects were at Rs 14tn in FY22, up 182% yoy, while
government projects saw a much lower 27% growth. We attribute softer government
capex trends to the fact that the government doesn’t invest in the sectors/segments
where incremental investment is being made – like renewables, chemicals, electronics,
metals, etc. As we know, public capex is also trending higher.
In FY22, out of Rs 19tn new capex projects, power generation projects (23%; renewable
at 19%, conventional at 4%) held a major share, followed by electronics manufacturing
(19%) and metals (14%). Renewable power projects by Reliance New Energy Solar,
SJVN Ltd, Arcerlormittal Nippon Steel, and JSW Energy were the major power
generation projects while semi-conductor fab manufacturing by Volcan Investments
and Reliance Industries were major projects in electronics manufacturing. Major
projects in the metals sector were led by steel plant projects from Bhushan Power &
Steel, Adani Enterprises, and two projects by Arcerlormittal Nippon Steel.
Out of the new projects announced in H1FY23, 38% were chemicals manufacturing
with key projects by Acme Cleantech Solutions and Indosol Solar Pvt Ltd. Power
generation came in second highest (renewables at 36%, conventional at 1%) led by
projects announced by Adani Green and Renew Power.
Private-sector capex has also seen an uptick in under-implementation and

announcements leading to a rising share in outstanding projects.
New projects by government and private sector (Rs bn) Share of government and private sector (outstanding projects)
7,000 Government Private Sector

Government Private sector
80
6,000
70
5,000 60
4,000 50
3,000 40
30
2,000
20
1,000
10
0
0
Mar-18
Mar-11
Mar-12
Mar-13
Mar-14
Mar-15
Mar-16
Mar-17
Mar-19
Mar-20
Mar-21
Mar-22
Sep-11
Sep-12
Sep-13
Sep-14
Sep-15
Sep-16
Sep-17
Sep-18
Sep-19
Sep-20
Sep-21
Sep-22
Mar-15
Mar-00
Dec-03
Mar-05
Jun-06
Dec-08
Mar-10
Dec-13
Dec-18
Mar-20
Jun-01
Sep-02
Sep-07
Jun-11
Sep-12
Jun-16
Sep-17
Jun-21
Sep-22
Source: CMIE, PhillipCapital India Research

Projects under implementation by government Projects announced by government and private sector (Rs bn)
and private sector (Rs bn)
Government Central Government Government Central Government
1,00,000
Government State Private Sector 60,000 Government State Private Sector
90,000
80,000 50,000
70,000
40,000
60,000
50,000 30,000
40,000
20,000
30,000
20,000 10,000
10,000
0
0
Dec-97
Mar-00
Dec-06
Mar-09
Jun-11
Sep-13
Dec-15
Mar-18
Sep-95
Jun-02
Sep-04
Jun-20
Sep-22
Dec-97
Mar-00
Dec-06
Mar-09
Dec-15
Mar-18
Sep-95
Jun-02
Sep-04
Jun-11
Sep-13
Jun-20
Sep-22
Break-up of outstanding projects (industry-wise): Transport New capex as % of GFCF: Private new capex has been inching
services, electricity generation, and real-estate construction up from Q2FY21 and attained 29% of GFCF in Q4FY22 while
sectors have a major chunk of outstanding projects as on government new capex was lower at 10%, indicating strong
Q2FY23 private-sector contribution to the Indian growth story
Irrigation, Agro
Total New capex Private new capex
5.8% products, Chemicals, Government new capex
Real estate 0.4% 8.5% Cons.
materials, 90
cons., 10.4%
0.9% 80
Miscellaneous
, 4.8% Metals, 7.5% 70
IT, 1.2% Machinery, 60
2.0% 50
Communication Transport,
, 0.6% 40
1.6%
Mining, 3.8% 30
20
Electricity, 10
Transport 19.4% 0
Q1FY12
Q3FY12
Q1FY13
Q3FY13
Q1FY14
Q3FY14
Q1FY15
Q3FY15
Q1FY16
Q3FY16
Q1FY17
Q3FY17
Q1FY18
Q3FY18
Q1FY19
Q3FY19
Q1FY20
Q3FY20
Q1FY21
Q3FY21
Q1FY22
Q3FY22
Q1FY23
serv, 30.6% Retail
trading, 1.4%
Source: CMIE, PhillipCapital India Research Source: CMIE, MoSPI, PhillipCapital India Research

New projects announced: Sector-wise summary

(Rs bn) FY18 FY19 FY20 FY21 FY22 H1FY23
Conventional power 592 482 1,357 234 674 63
Renewable power 2,282 2,419 2,632 1,337 3,596 2,774
Power generation 2,874 2,901 3,989 1,572 4,269 2,837
Power transmission 109 260 97 19 427 7
Power distribution 48 8 3 0 0 0
Power T&D 157 268 100 19 427 7
Power 3,031 3,169 4,089 1,590 4,697 2,844
Coal & lignite 50 74 97 128 196 0
Crude oil & natural gas 922 184 74 20 0 21
Petroleum products 471 1,459 775 44 250 56
Natural gas distribution 96 299 14 19 48 1
Oil & gas 1,489 1,941 863 83 298 78
Roads 2,652 1,890 945 811 1,168 58
Railways 1,707 484 2,453 18 282 10
Airport Infra 178 123 41 3 0 1
Ports 204 192 59 103 556 10
Water & irrigation 579 837 378 368 314 53
Infrastructure 5321 3526 3876 1303 2319 131
Housing construction 1171 1386 1604 314 224 12
Commercial complexes 701 854 1613 372 255 1
Real estate 1872 2240 3217 687 479 13
Hotels, hospitals, education etc 677 725 611 470 435 90
Metals 500 755 591 1561 2673 267
Cement 208 281 171 69 163 38
Electronics 173 208 151 214 3,545 125
Chemicals 599 905 354 243 1344 2929
Auto 268 314 285 241 400 40
F&B 216 184 104 144 199 81
Textiles 206 110 62 54 192 47
Pharma 132 73 475 371 89 42
Fertilisers 4 7 1 29 122 73
Telecom 44 36 11 0 19 12
IT 61 319 409 493 448 157
Others 1,309 705 696 1,182 621 686
Total ex-Air transport 16160 15574 16062 8861 18238 7654
Air transport services 345 1528 2343 0 669 0
Total 16505 17102 18405 8861 18907 7654
PC coverage: Uptick in most sectoral capex in FY23; buoyant

in FY24
Capex to remain strong for the 118 companies under our coverage
For FY23, capex is likely to trend higher with 49% yoy growth. Telecom/metals/auto &
anc. will contribute 41%/24%/15% to total capex. Capex growth will be stronger for
infrastructure (116%), followed by telecom (94%), metals (75%), consumer durables
(56%), cement (39%), oil & gas (31%) and FMCG (26%). Additionally, our forecast
indicates that all nine infrastructure companies under coverage are likely to see growth
in capex in FY23. Sectors like specialty chemicals (13%), capital goods (7%) and auto &
anc. (2%) are likely to see relatively lower growth. Pharma (-31%), logistics (-27%), agri
(-10%) will decline. Auto & anc. (Hero, MSIL), FMCG (HUL, BRIT), agri (Coromandel, PI),
capital goods (Cochin Shipyard, BDL, KEC), cement (Dalmia, JK Lakshmi, Ambuja,
Shree), infrastructure (HG Infra, Ashoka), pharma (Dr Reddys, Zydus), specialty
chemicals (SRF, Vinati), metals (Tata, Hindalco), consumer durables (Havells, KEI,
Orient Electric), logistics (Transport Corporation, Container Corporation, Gateway
Distriparks), and oil & gas (Petronet, Indraprastha) saw the strongest increase in capex.
Both telecom service providers, Bharti Airtel and VIL will ramp up their capex in FY23
for 5G connectivity infrastructure.
For FY24, we estimate capex growth to decline from the highs in FY23 led by lumpy
investments in metals, cement, and telecom in FY23. Increased capex expected in
sectors like capital goods (29%), pharma (20%) and logistics (30%).

Capex of select companies under PCI coverage

Capex (Rs mn) Annual growth
Sectors FY20 FY21 FY22 FY23E FY24E FY21 FY22 FY23E FY24E
FMCG 69,609 55,719 65,570 82,548 1,00,915 -20% 18% 26% 22%
Agri 62,023 18,291 42,444 38,160 35,656 -71% 132% -10% -7%
Auto 5,93,206 3,30,549 4,60,643 4,71,543 4,69,067 -44% 39% 2% -1%
Capital Goods 73,652 49,825 63,936 68,244 87,898 -32% 28% 7% 29%
Cement 1,83,741 96,675 1,60,454 2,23,073 1,52,277 -47% 66% 39% -32%
Infra -31,609 24,515 20,369 44,021 44,477 -178% -17% 116% 1%
Pharma 94,845 1,10,818 1,28,644 88,511 1,05,976 17% 16% -31% 20%
Specialty Chem 35,287 30,532 41,410 46,624 45,501 -13% 36% 13% -2%
Metals 4,69,193 4,32,238 4,35,329 7,60,037 6,82,290 -8% 1% 75% -10%
Consumer durables 12,610 10,315 14,920 23,310 25,154 -18% 45% 56% 8%
Logistics 23,414 13,584 20,506 14,889 19,339 -42% 51% -27% 30%
Oil & Gas 14,415 12,957 24,500 32,000 29,500 -10% 89% 31% -8%
Telecom 7,85,944 2,98,329 6,65,935 12,93,302 3,03,400 -62% 123% 94% -77%
Total 23,86,329 14,84,345 21,44,661 31,86,261 21,01,448 -38% 44% 49% -34%
Source: Companies, PhillipCapital India Research
NIFTY500 capex: Healthy capex line-up

Among the 289 companies for which data is available evenly till FY24 (excluding financials
and IT) under the NIFTY500, capex should grow by 25% in FY23 over the 18% growth
registered in FY22. Slight decline of 8% in FY24 over a significantly higher base. Energy
(35%), materials (18%) and utilities (15%) should be the highest contributors to capex in
FY23. Capex undertaken by energy companies is likely to grow by 7% in FY23 and see a
minuscule 4% decline in FY24. Communication services capex will see 71% yoy growth,
mainly due to implementation of 5G by VIL and Bharti Airtel. Stronger capex will also be
visible for industrials (54%), consumer discretionary (46%), materials (44%) and real
estate (44%). Capex growth will be decent for other categories at 13-17%.
Dip in Industrials capex in FY24 is largely owing to lower capex by Adani Enterprises,
Indigo, IRCTC, Concor, Havells, and HEG.
Capex of select NIFTY500 companies

Capex (Rs mn) Annual growth
Sectors FY20 FY21 FY22 FY23E FY24E FY21 FY22 FY23E FY24E
Health Care 1,58,678 1,51,543 1,86,664 2,20,893 2,02,577 -4% 23% 18% -8%
Materials 7,33,506 5,90,056 8,08,318 11,61,403 10,83,030 -20% 37% 44% -7%
Consumer Discretionary 4,17,353 3,03,061 3,57,445 5,21,523 5,24,848 -27% 18% 46% 1%
Industrials 2,53,752 1,53,842 2,79,016 4,28,731 2,93,014 -39% 81% 54% -32%
Consumer Staples 78,067 68,383 95,429 1,06,811 1,08,352 -12% 40% 12% 1%
Utilities 5,72,429 6,13,540 8,45,977 9,59,959 9,22,308 7% 38% 13% -4%
Communication Services 3,06,985 3,36,835 3,94,788 6,75,128 5,34,351 10% 17% 71% -21%
Real Estate 38,712 29,278 41,016 59,146 48,762 -24% 40% 44% -18%
Energy 19,91,353 20,73,374 20,75,575 22,11,481 21,22,934 4% 0% 7% -4%
Total 45,50,834 43,19,913 50,84,228 63,45,074 58,40,173 -5% 18% 25% -8%
Source: Bloomberg, PhillipCapital India Research

Infrastructure and capital goods companies’ order book: Robust

expectations for FY23-24
We analysed the order inflows and outstanding order books of infra and capital goods
companies (9 + 13 = 22) to gauge the capex execution in coming years. Current analysis
is based on our analyst’s estimates:
Order inflows to rise:

FY23-24 ordering should be far stronger for infrastructure and capital goods companies
compared to FY17-22. Total order inflows for these sectors are likely to rise to Rs
4.9/5.2tn in FY23/24 with 28%/5% yoy growth.
• Infra companies are likely to record order inflow growth of 50% in FY23 with
significantly higher orders for GR Infra, HG Infra, Ahluwalia Contracts, NCC, and
PNC. Relatively higher orders also expected for ITD Cementation and IRB. Ashoka
and KNR are likely to see lower orders.
• NHAI awarded 6,306 kms of road construction orders in FY22, registering strong
32% yoy growth vs. 4,788/3,211 kms in FY21/20. Continuing with the trend, we
expect roads awarded to further increase in FY23.
• Within the capital-goods space, infrastructure/power/defence/hydrocarbon will
continue to be the largest sectors in terms of order inflows, with
15%/13%/37%/8% growth in FY23. These sectors are likely to further grow by
11%/2%/10%/6% in FY24.
• Total order inflows are likely to register 24%/8% growth in FY23/24 after 10%
growth in FY22. ABB, BDL, BEL, BHEL, Cochin Shipyard, KEC, and L&T will receive
strong orders in FY23 while BEL will see strong growth also in FY24 along with GE.
BDL and Cochin Shipyard to see a significant fall in order inflows in FY24.
• Order book (infra + capital goods): We expect order book for infra and capital
goods companies to grow by an average 11% in FY23-24 vs. 8% in FY22. It should
stand at Rs 13tn in FY23, Rs 9tn in FY24, vs. Rs 8tn in FY22.
Order inflows and order book for infra and capital-goods companies
Order Inflows (Rs Bn) FY17 FY18 FY19 FY20 FY21 FY22 FY23E FY24E
Infra 355 494 583 284 598 566 850 785
Capital goods 2628 2707 2982 2892 3005 3297 4088 4414
Total 2982 3201 3564 3176 3603 3863 4938 5199
Growth rate (yoy, %)
Infra 16.2 39.2 18.0 -51.3 110.5 -5.2 50.1 -7.6
Capital goods 4.5 3.0 10.1 -3.0 3.9 9.7 24.0 8.0
Total 5.8 7.3 11.4 -10.9 13.4 7.2 27.8 5.3
Order Book (Rs Bn) FY17 FY18 FY19 FY20 FY21 FY22 FY23E FY24E
Infra 666 901 1109 1020 1248 1353 1621 1770
Capital goods 5577 5618 5990 6077 6477 6979 7831 8559
Total 6243 6520 7099 7097 7725 8332 9452 10329
Incremental 450 277 579 -2 629 607 1120 877
Growth rate (yoy, %)
Infra 18.0 35.4 23.0 -8.0 22.4 8.4 19.8 9.2
Capital goods 6.7 0.7 6.6 1.4 6.6 7.8 12.2 9.3
Total 7.8 4.4 8.9 0.0 8.9 7.9 13.4 9.3
Source: Companies, PhillipCapital India Research

Credit trends: Double-digit growth indicates sound

economic activity
Credit growth is quite strong currently at 16% yoy; double-digit credit growth has
sustained since April 2022. Industrial credit has been witnessing a gradual uptick from
January 2022 and is currently at 13% yoy growth, indicating buoyancy in manufacturing
operations. Going ahead, capex expansion will keep credit growth supportive and
lower prices will soften working capital demand. Corporates have stronger BS and
bond markets to support capex expansion plans. That said, higher interest rate is a
near-term negative for any sort of borrowing and expansion plans.
Credit/GDP ratio shot up from a low base in FY00 at 20% to touch 53% in FY12; this was
the period of double-digit GFCF growth). It stagnated around these levels for the last 8
years.
Credit growth (yoy, %) Credit to nominal GDP ratio (%)

18 60
16
50
14
12 40
10
8 30
6
20
4
2 10
0
0
Jul-19
Jul-20
Jul-21
Jul-22
Oct-19
Oct-20
Oct-21
Oct-22
Jan-19
Apr-19
Jan-20
Apr-20
Jan-21
Apr-21
Jan-22
Apr-22
FY90
FY92
FY94
FY96
FY98
FY00
FY02
FY04
FY06
FY08
FY10
FY12
FY14
FY16
FY18
FY20
FY22
Source: RBI, CSO, PhillipCapital India Research
Looking at the credit disbursal pattern among the industries, it is clear that the
infrastructure sector – that includes power, telecommunication, roads, airports, ports,
railways and other infrastructure – leads, with a major share of around 38% as of
September 2022. This is followed by metals (10%), textiles (7%), chemicals (7%), food
processing (5%) and engineering industries (5%).
Following the headline industrial credit growth, most industries have also seen uptick
in availing credit. Notable industries currently recording healthy credit growth are-
petroleum & fuels (123%), chemicals (18%), infrastructure (12%), engineering (17%)
and food processing (10%). Credit intake was softer for textiles (8%), metals (7%), auto
& ancillary (7%), and cement (6%).

Sectoral credit growth (yoy, %)
Agri & Allied Activities Industry Services Personal Loans

25
20
15
10
-5
May-19
Jul-19
May-20
Jul-20
May-21
Jul-21
May-22
Jul-22
Jan-19
Mar-19
Nov-19
Jan-20
Mar-20
Sep-20
Nov-20
Jan-21
Mar-21
Nov-21
Jan-22
Mar-22
Sep-19
Sep-21
Sep-22
Source: RBI, CSO, PhillipCapital India Research
Major industry-wise credit share (%) Major industry-wise credit share (%)
Food Processing Basic Metal & Metal Product
Textiles Engineering
Petroleum, Coal Products & Nuclear Fuels Vehicles, Vehicle Parts & Transport Equipment
Chemicals & Chemical Products Construction
Cement & Cement Products Infrastructure (RHS)
9 40
12
7 38
5 36
7
3 34
1 2 32
May-19
Jul-19
May-20
Jul-20
May-21
Jul-21
May-22
Jul-22
Jan-19
Mar-19
Nov-19
Jan-20
Mar-20
Nov-20
Jan-21
Mar-21
Nov-21
Jan-22
Mar-22
Sep-19
Sep-20
Sep-21
Sep-22
Mar-19
May-19
Jul-19
Nov-19
Mar-20
May-20
Jul-20
Nov-20
Mar-21
May-21
Jul-21
Nov-21
Mar-22
May-22
Jul-22
Jan-19
Sep-19
Jan-20
Sep-20
Jan-21
Sep-21
Jan-22
Sep-22
Source: RBI, PhillipCapital India Research
Major industry-wise credit growth (yoy, %) Major industry-wise credit growth (yoy, %)
Food Processing Basic Metal & Metal Product
Textiles Engineering
Chemicals & Chemical Products Vehicles, Vehicle Parts & Transport Equipment
Cement & Cement Products Infrastructure
Petroleum, Coal & Nuclear Fuels (RHS) Construction (RHS)
40 150 30 40
20 30
20 100
20
10
0 50 10
0
0
-20 0
-10 -10
-40 -50 -20 -20

May-19
Jul-19
May-20
Jul-20
May-21
Jul-21
May-22
Jul-22
Mar-19
May-19
Jul-19
May-20
Jul-20
May-21
Jul-21
May-22
Jul-22
Jan-19
Mar-19
Nov-19
Jan-20
Mar-20
Nov-20
Jan-21
Mar-21
Nov-21
Jan-22
Mar-22
Jan-19
Sep-19
Nov-19
Jan-20
Mar-20
Nov-20
Jan-21
Mar-21
Nov-21
Jan-22
Mar-22
Sep-19
Sep-20
Sep-21
Sep-22
Sep-20
Sep-21
Sep-22
Source: RBI, PhillipCapital India Research

Realizing the export potential to drive growth

Export-led growth opportunities
Indian merchandise exports share was very low at less than 1% of world exports till
2005. After attaining 1.6% in 2011, the share was relatively stagnant at 1.6-1.7%, until
covid hit the world. However, in 2021, the share of exports rose to 1.8%. Exports
remained strong above US$ 30bn from March 2021, and peaked in March 2022.
With a relatively lower share in world merchandise exports, India has abundant
potential to expand its presence, as compared to other countries, which have captured
substantial market share (mentioned above). India aims to become a manufacturing
hub. As such, with government support to private players via incentives such as PLI,
the country can become an important player in world exports. Along with conducive
domestic policies and incentives to encourage exports, the Indian government is also
focusing on signing FTAs with sizeable nations; existing FTAs are a decade old, and with
smaller nations. FTAs with large economies can open tremendous opportunities for
Indian exports.
Share of Indian exports to world exports (yoy, %) Monthly Indian exports, imports, and trade balance
India Exports (US$ Bn) India Exports as % of World Exports Export Import Trade Balance
450 2.0
1.8 80000
400
350 1.6 60000
1.4
300
1.2 40000
250
1.0 20000
200
0.8
150 0
0.6
100 0.4 -20000
50 0.2
0 0.0 -40000
Apr-16
Dec-16
Apr-17
Dec-17
Apr-18
Apr-19
Dec-19
Apr-20
Dec-20
Apr-21
Dec-21
Apr-22
Aug-16
Aug-17
Aug-18
Dec-18
Aug-19
Aug-20
Aug-21
Aug-22
2003
2017
2002
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2018
2019
2020
2021
Source: WTO, PhillipCapital India Research Source: Ministry of Commerce & Industry, PhillipCapital India Research
The US contributed 18% of total Indian exports, followed by China + Hong Kong (8%),
UAE (7%), Bangladesh (4%), and Netherlands (3%) in FY22.
US exports: 19% of exports to the US were gems & jewellery, followed by

pharmaceutical products (9%), machinery (8%), petroleum products (7%) and
electronics equipment (5%). Textiles, organic chemicals and automobiles & ancillary
sectors saw around 4% share of total exports, while it is also notable that exports of
these commodities have seen decent growth over the years.
China + Hong kong (leading global exporter with 18% share in world exports, EU ranks
highest) is the second highest exports partner for India – with key commodities
exported being gems and jewellery (30%) followed by iron ore (8%), organic chemicals
(8%), and petroleum products (6%). Exports of machinery and electrical equipment,
even if it is just 4% each, has seen growth over the years.

India’s top-5 exports partners as of FY22 (USD mn) India’s next-5 exports partners as of FY22 (in USD mn)
80000 FY19 FY20 FY21 FY22 14000 FY19 FY20 FY21 FY22
70000
12000
60000
10000
50000
8000
40000
6000
30000
20000 4000
10000 2000
0 0
US CHINA+HONG UAE BANGLADESH NETHERLAND SINGAPORE UK BELGIUM GERMANY NEPAL
KONG
Source: Ministry of Commerce & Industry, PhillipCapital India Research
Exports growth: Volume and Value driven

While there is a clear indication that the value of India’s exports is rising recently, the
concern is whether this increase is due to price pressures. Incremental increase in
exports volumes would suggest better production capabilities in the economy.
• Both by volume and value, petroleum products were the highest exported
commodity from India. Looking at the detailed exports volume over the years,
automotive diesel, motor gasoline, and high-speed diesel grew stronger in FY22.
• Iron-ore pellets were the second-highest exports in quantity, which saw

tremendous growth in FY22. Till FY21, exports of this commodity were minimal.
• Other key commodities exported were limestone which saw a 571% rise in
volumes exported in FY22 over the 77% growth registered in FY21, but its exports
were 85% weaker in FY23 until September.
• Cereals export from India also saw strong growth in FY21, continued the same
trend in FY22, and similar strength was visible in FY23 till date. Key cereals
exported were rice and wheat – which saw higher exports in FY21/22.
• The manufacturing sector also fared well in exports in FY22.

o In electrical appliances and related accessories, key exports from India are
electrical accessories like capacitors, winding wires, resistors, conductors,
etc., which have all seen higher exports in FY22.
o Exports of mobile phones initially happened in FY21, which grew by 25% in
FY22.
• Machinery, mechanical appliances, and parts also saw robust growth in FY22 and
till FYTD23, except for the exports of some machinery parts & spares which were
slightly weak FYTD. Air conditioning machines and its parts, except certain specific
categories, saw higher exports in FY22 and continued the trend in FYTD23 as well.
With better production supported by PLI, exports of these commodities can surge.

• Another key commodity where India could shine is automobiles & ancillary. While
auto parts exports have been driving this segment by volume (up in FY22), data
also indicated higher exports of cars, scooters, three-wheelers and two-wheelers
in various categories in the year. Exports of two-wheelers below 250cc and three-
wheelers in FTYD23 were lower. However, exports of cars, scooters, and motor
cycles above 250cc were stronger in FYTD23.
• Pharmaceutical and medical equipment saw stronger exports in FY22 and also in
FYTD23, except for slight weakness in specific commodities.
Overall, trade volumes also saw higher exports of late, which show improved
production capacity and a wider market for Indian goods. While some of the surge
could be due to pent-up post-covid demand, increase in volume reassures how FTAs
and PLIs can improve Indian exports volumes over the years.
Free Trade Agreements (FTAs) are vital to tap the wider exports market. With lesser
trade restrictions and tariffs between signatories, trade can be enhanced with these
partner countries. India is currently signatory to 13 FTAs and 6 Preferential Trade
Agreements (PTAs) – with its FTAs with UAE and Australia being the most recently
announced trade agreements.
New foreign trade policy to be announced soon will steer Indian trade-led growth in
the right direction.
Out of the top-20 exports partners, India has bilateral FTAs with seven countries. As
part of multilateral FTAs, India has favourable trade terms with Bangladesh, Indonesia,
and Vietnam.
List of Free Trade Agreements (FTAs) currently active

Free Trade Agreements & Comprehensive Economic Cooperation
Sl No Signed on Countries
Agreement (CECA)
1 Indo Sri Lanka Free Trade Agreement 28-Dec-98
2 India – Thailand Comprehensive Economic Cooperation Agreement 09-Oct-03
Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan
3 South Asia Free Trade Agreement (SAFTA) 06-Jan-04
and Sri Lanka
4 India-Singapore Comprehensive Economic Cooperation Agreement 29-Jun-05
5 India – Korea CEPA 07-Aug-09
India-ASEAN CECA - Trade in Goods, Services and Investment Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar,
6 13-Aug-09
Agreement Philippines, Singapore, Thailand and Vietnam
7 India -Nepal Treaty of Trade 27-Oct-09
8 India – Japan CEPA 16-Feb-11
9 India - Malaysia CECA 18-Feb-11
10 India-Bhutan Agreement on Trade, Commerce and Transit 29-Jul-17
India-Mauritius Comprehensive Economic Cooperation and
11 22-Feb-21
Partnership Agreement
12 India UAE CEPA 18-Feb-22
13 India-Australia Comprehensive Economic Cooperation Agreement * 02-Apr-22
*- Signed, but yet to be implemented
Source: Ministry of Commerce & Industry, PhillipCapital India Research

Detailed analysis of FTAs

FTA with ASEAN has seen healthy pick-up over the years, with total exports to its
member countries accounting for 10% of India’s total exports. Exports to Singapore
(26%) stood tall among ASEAN members, followed by Indonesia (20%), Malaysia (17%),
Vietnam (16%), and Thailand (14%).
• Key exports to Singapore: Petroleum products (55%), machinery (9%), and gems
& jewellery (6%). Organic chemicals and electrical machinery share in total exports
was 3-4%.
• Key exports to Indonesia: Petroleum products (28%), sugar confectionary (11%)
and iron & steel (8%). Exports of organic chemicals, automobiles and machinery
accounted between 4%-6% of exports to Indonesia.
• Key exports to Malaysia: Petroleum products (32%), organic chemicals (6%) and
machinery (5%).
• Key exports to Vietnam: Iron & steel products (22%), cotton (8%) and cereals (8%).
Automobile & ancillary, machinery and electrical equipment comprise around 4%
each of exports to the country.
• Key exports to Thailand: Gems & jewellery (20%), machinery (19%) and iron & steel
products (7%). Automobile, organic chemicals, electrical equipment and
pharmaceuticals account for 3%-5% of exports.
A similar multilateral agreement, SAFTA signed early 2004 has helped with sustainable
improvement of Indian exports over the years, touching 8% of total Indian exports. The
main driver for this was trade with Bangladesh, which comprised 47% of exports with
SAFTA while Nepal saw 28%.
• Bangladesh: Cotton (28%) was the highest exported commodity to Bangladesh in
FY22/21 followed by cereals (14%). Significant improvement was also seen in
exports of automobiles and machinery with 5-6% share. Organic chemicals and
electrical equipment were among the top-10 commodities exported.
• Nepal: Petroleum products comprised 26% of total exports to Nepal followed by
iron & steel products (14%). Automobile and ancillary (8%) and machinery (7%)
exports were significant while electrical equipment and pharmaceutical were also
among the top 10 products exported with 3-4% share.
FTA with Korea saw slight enhancement over the years without much changes in its
share of Indian exports. In FY22, exports to Korea increased to 2% from around 1.4%
in FY14, with major commodities exported being petroleum products (32%), followed
by aluminium (19%), and iron & steel products (8%). Machinery, gems & jewellery,
automobile & ancillary, and electrical equipment were among the top-11 commodities
exported to Korea with 2-3% share.
FTA with Japan helped with a quick pick-up in exports after its signing in FY11, but its
share in India’s total exports has not improved as one would expect from a developed
economy. The key commodity exported to Japan was petroleum products (16%),
organic chemicals (11%), electrical equipment (8%) and machinery (8%). Gems &
jewellery and automobile & ancillary are also among the top exported commodities
with 5-6% share.
Exports to UAE have also seen healthy 68% yoy growth in FY22 and 27% in FYTD23.
Benefits of the recently signed UAE FTA – via incremental exports – will be seen in
products like gems and jewellery, textiles, leather, footwear, sports goods, plastics,
furniture, agricultural and wood products, engineering products, pharmaceuticals,
medical devices and automobiles. Apart from mineral fuels, which are 22% of the total
exports to UAE in FY22 in value, jewellery (18%) and electrical machinery (10%) were
the next highest exported commodities.

India could also find significant export potential to Australia – with whom it signed the
agreement in April 2022 is now India’s 14th-highest export partner. Trade agreement is
yet to be implemented as both the economies as finalising on the ratification. Key
commodities that could find advantage in Australia are pharmaceuticals, agricultural
products, textiles, engineering products, gems & jewellery and leather & footwear.
India is already exporting petroleum products (56% of its exports to Australia),
pharmaceuticals (4%), gems & jewellery (4%), machinery (3%), electrical equipment
(2%) and automobile and ancillary (2%) to Australia.
FTAs under negotiation: India is currently in negotiation with UK, Canada, and the EU
to finalize FTAs. Trade agreement with the UK got delayed, and is now expected to be
finalized by March 2023. UK is India’s eight-highest exports partner – with cement,
electrical machinery, textiles, leather, and food products among the key commodities
exported by volume. Trade agreements are also under negotiation with the EU and
Canada, and will soon be launched with GCC nations. Exports to Netherlands, Belgium,
Germany, Italy, and France, which are all among India’s top-20 exports partners, will
see substantial improvement, as the EU trade deal is finalized. Textiles, leather,
agriculture, and food products are the key sectors to gain.
Other FTAs that India is currently part of are mostly with smaller developing economies
and have thus not seen much momentum in the past years, as their share in India’s
total exports is minimal.
Conclusion: After analysing Indian export constituents, FTAs, and PLIs, we are
confident that India has substantial scope and levers to expand its exports share
globally. Currently, we are below 2% global exports’ share as compared to China’s 15%.
We expect the share of all the currently exporting key commodities (petroleum
products, gems & jewellery, textiles, machinery, electrical equipment,
pharmaceuticals, chemicals, automobiles, iron & steel products, and food products) to
rise due to the above-mentioned levers. Additionally, consumer electronics, semi-
conductors, and hydrogen will contribute to a rise in Indian exports in the long-term.

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INSTITUTIONAL EQUITY RESEARCH

India Growth Story 2.0

Navaneeth Vijayan, Research Associate

Page | 1 | PHILLIPCAPITAL INDIA RESEARCH

Risks: Prolonged global and Indian slowdown/recession, elevated interest rates in

Page | 2 | PHILLIPCAPITAL INDIA RESEARCH

India to outperform for a very long time…

Source: IMF WEO October, PhillipCapital India Research

Page | 3 | PHILLIPCAPITAL INDIA RESEARCH

…to be supported by manufacturing…

Annual IIP growth (yoy, %) India PMI trend

Source: CSO, IHS Markit, PhillipCapital India Research

Page | 4 | PHILLIPCAPITAL INDIA RESEARCH

PLI-induced exports: The government estimates US$ 30-40bn/annum additional

Page | 5 | PHILLIPCAPITAL INDIA RESEARCH

Green shoots in the Indian investment pattern

Source: RBI, CSO, Bloomberg, PhillipCapital India Research

Government capex push – to remain undoubtedly buoyant

Page | 6 | PHILLIPCAPITAL INDIA RESEARCH

Government capital expenditure (Rs bn, % of GDP)

Source: Union Budget Documents, CGA, PhillipCapital India Research

Page | 7 | PHILLIPCAPITAL INDIA RESEARCH

IEBR spending strengthened by 5% in FY22 while 7% decline was noted in FY23BE as

12000 100.0 6000

10000 80.0 5000

FY17 FY18 FY19 FY20 FY21 FY22 FY23BE

Source: RBI, Union Budget Documents, PhillipCapital India Research

Total government capex trend- Centre+IEBR+State (Rs bn)

Source: PhillipCapital India Research

Page | 8 | PHILLIPCAPITAL INDIA RESEARCH

PLIs– just the beginning; execution under way

PLI schemes announced and total outlay (Rs bn)

Source: MOCI, MEITY, PhillipCapital India Research

Page | 9 | PHILLIPCAPITAL INDIA RESEARCH

PRIVATE CAPEX: Upturn!!!!

Private-sector capex has also seen an uptick in under-implementation and

7,000 Government Private Sector

Source: CMIE, PhillipCapital India Research

Page | 10 | PHILLIPCAPITAL INDIA RESEARCH

Page | 11 | PHILLIPCAPITAL INDIA RESEARCH

New projects announced: Sector-wise summary

PC coverage: Uptick in most sectoral capex in FY23; buoyant

Page | 12 | PHILLIPCAPITAL INDIA RESEARCH

Capex of select companies under PCI coverage

NIFTY500 capex: Healthy capex line-up

Capex of select NIFTY500 companies

Page | 13 | PHILLIPCAPITAL INDIA RESEARCH

Infrastructure and capital goods companies’ order book: Robust

Order inflows to rise:

Page | 14 | PHILLIPCAPITAL INDIA RESEARCH

Credit trends: Double-digit growth indicates sound

Credit growth (yoy, %) Credit to nominal GDP ratio (%)

Page | 15 | PHILLIPCAPITAL INDIA RESEARCH

Sectoral credit growth (yoy, %)

Agri & Allied Activities Industry Services Personal Loans

-40 -50 -20 -20

Source: RBI, PhillipCapital India Research

Page | 16 | PHILLIPCAPITAL INDIA RESEARCH

Realizing the export potential to drive growth

US exports: 19% of exports to the US were gems & jewellery, followed by

Page | 17 | PHILLIPCAPITAL INDIA RESEARCH

Source: Ministry of Commerce & Industry, PhillipCapital India Research

Exports growth: Volume and Value driven