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The Panorama newsletter is sent to Moneycontrol Pro subscribers on market days. It offers easy access to stories published on Moneycontrol Pro and gives a little extra by setting out a context or an event or trend that investors should keep track of.In late 2022, an executive from Kotak Mahindra Bank flagged off gross mispricing of corporate loans saying banks are chasing too few good borrowers and undercutting. A few months later in 2023, the Bajaj Finance management warned that credit risk isn’t getting priced as it should be. By the end of that year, the Reserve Bank of India (RBI) had cracked down on unsecured retail lending through hikes in risk weights. We know now that these alarms on loan risk in 2022 were real.

In the past one year, the alarms have given way to relief, but in pockets. The RBI has eased its stance on both monetary and macroprudential policy. Risk weights for bank loans to non-bank lenders have been eased and more importantly, liquidity is being infused left, right and centre. The RBI wants banks to lend to good borrowers and there is a clear bias to bring long-term borrowing costs down to encourage capital expenditure.

As an incentive, the benchmark 10-year government bond yield has declined 70 basis points in the past one year and the yield on corporate bonds of various tenures have also fallen by at least 40 bps. Bond issuances have surged, an indication that companies are attracted to borrow with softer yields. Liquidity is in surplus, and the RBI will continue to infuse more, according to analysts. All these monetary concessions come close on the heels of fiscal measures of the past two years aimed at prodding private companies to invest. From performance-linked incentives (PLI) to sector specific incentives, the government has given Indian businessmen enough reason to set up factories, construct roads, ports and airports and set in motion a virtuous cycle of investment-led growth. The government has even taken on the role of a big spender by budgeting a surge in capex.

Policymakers and markets have held on to the hope that private capital expenditure will finally emerge as the primary engine to drive GDP growth. In the years following the pandemic, investors hoped that the consumption sugar rush would drive companies to increase capacity. Then, the hopes were pinned on government capex which will act as a lure for private firms. The government increased its spending, but private capex is not taking a hint yet. Now, finally markets hope that a conducive monetary policy and the easing interest rate regime would fire up capex.

But just like a truck with a faulty gear box, private capex has sputtered, and Indian firms are no longer sure they want to pour capital into the economy and increase capacity. A survey, the first of its kind, by the Ministry of Statistics and Programme Implementation (MOSPI) reveals that capex intentions of private firms are 25 percent lower for FY26 than they were for FY25. Our Chart of the Day captures this worrying finding. The survey is just another input that states what has been obvious: for companies to confidently invest capital, many factors must fall in place. What is most important is a level of certainty when it comes to both domestic and international policies and capital movements.

This is where everything has faltered in the past six months. The tariff hikes by the US on trading partners, and the flipflops of the Trump administration, have left companies wondering whether it is worth to even think about investing. When there is no certainty of an increase in demand for your wares, producers are unlikely to boost capacity. Is the hope for private capex revival a false one then?

To be sure, markets have adjusted their hopes this year. Analysts acknowledge the growth in capex in past years, but also point out that an uncertain environment globally acts as a chill on all intentions of investment.

But all is not lost. Even with a decline, private capex in the right corners of the economy can boost growth and create jobs. Essentially, capex in manufacturing must grow and it seems there is hope here. The survey shows that capex intentions in manufacturing are 9 percent higher in FY26. The decline in intentions is mostly in information and communication and trade which is logical, given the exposure to exports.

As long as manufacturing holds up to its promise of improving consistently every year and its share in gross value added increases, the hope of private capex revival can be turned from a chimera into reality.

Investing insights from our research team

Weekly Tactical Pick: Is this value retailer poised to benefit from the shift to organised segment?

Federal Bank Q4 FY25 – taking baby steps to achieve long-term goals

FY26 starts on a low gear for the automobile industry

Jindal Steel and Power: Worth a look amid the volatile global backdrop?

Eternal Q4 FY25: Is the growth strategy losing its flavour?

Varun Beverages: Is it the right drink for investors?

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IndusInd investors on edge amid management exits; what could the future hold?

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Watch for the ripples in otherwise calm bond markets (republished from the FT)

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Vault matters | What’s behind the growing disconnect between Nifty Bank Index and reality

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