West Asia Conflict Poses Challenges to India's Reviving Capex Cycle
India’s private sector spending is experiencing a much-needed revival. After a decade of stagnation, engineering and capital goods firms, which are the backbone of industrial expansion, are reporting a long-awaited increase in orders.
But as this revival begins to take shape, it faces several challenges, including the ongoing conflict in West Asia and an uneven domestic consumption story. If the conflict prolongs or worsens, the path to recovery may become more challenging due to the rising cost of oil barrels and other inflationary pressures.
The numbers reveal a structural shift. According to ICICI Securities, India Inc’s yearly capex for its listed universe made an impressive start in 2001, peaking at Rs 6 trillion in 2011. For a decade, it plateaued at the same annual levels, only to breach the 2011 mark in 2023 and rising to touch Rs 12 trillion in the first six months of FY26.
India’s largest engineering firm, Larsen & Toubro (L&T), a bellwether for the Indian economy, exemplifies this trend. In its latest quarterly performance report, L&T highlighted a ‘meaningful’ rise in private sector orders, stating, “we are now slowly looking at a higher share of private sector prospects,” and expect private and public spending to maintain pace in the near term. The private sector’s contribution to L&T’s domestic order book surged to 36% in December, up from 21% just nine months earlier. While public spending has supported the economy for five years, the private sector is finally catching up.
Rating agency Crisil, in a recent note on March 11, also observed that private investment sentiment was improving, with a recovery in private capex underway, driven by emerging sectors. The relatively recent boom in India’s real estate segment is one of the primary recipients of the rising private capex. Multiple engineering firms listed their real estate clients as significant contributors to their private sector order books. For companies like Kalpataru Projects International, buildings and factories brought close to 60% of its new orders between April and December 2025.
Along with real estate, the energy sector, particularly fossil fuels, is keeping these firms busy. There is a renewed interest in adding thermal power capacity in India, which includes large investments from private players such as Adani Power. “For capital goods companies, government/PSU orders still constitute a majority share,” Jitin Makkar, Senior Vice President and Group Head at ICRA Ratings, told The Core. “However, recent trends show a rising order book share from the private sector in the following segments – power equipment, data centres, real estate, and select segments of manufacturing (like defence, electronics manufacturing, and other PLI-supported segments).”
Crisil’s report noted, “While the traditional industries form a significant share of industrial capex, a shift toward export-led manufacturing, renewable energy transition, and strategic autonomy will drive the next phase of growth.” The revival is neither broad-based sector-wise nor even across company sizes. For instance, a significant amount of investments in the real estate space is now from big developers. Sneha Poddar, vice president for equity research at Motilal Oswal, added that automobiles, healthcare, cement, metals, and mining are the other sectors contributing to these order books from the private sector. Most of the new orders from the private power sector came from one producer alone. A chunk of the new investments seen in the metal sector is from the top producers.
India’s private sector capex story can be strengthened or weakened depending on how consumer-facing sectors decide to spend on capacity expansions. Multiple industry analysts said that the capex revival is not broad-based, particularly within the consumer space. Makkar from ICRA stated, “While balance sheets are supportive (financial leverage is low and cash flows are generally growing well), investment decisions remain selective, given global uncertainty and uneven domestic demand recovery. As for the outlook, the private sector capex revival prospects remain circumspect and confidence-driven.”
The lack of a broad-based recovery is also something executives at engineering firm Thermax highlighted to analysts in their latest earnings call. Those at Siemens have previously indicated that GST changes made last year will bear fruit from April onwards. The company’s top executives noted, “the consumption story always takes 5 to 6 months to kick in…. I think the first signs will probably come starting April onwards when you start seeing whether that consumption story has started picking up, and consequently whether private sector CapEx is picking up.”
Another significant threat to this momentum is the volatile situation in West Asia. In a report released less than a fortnight ago, CareEdge noted that downside risks to credit offtake growth rise if the conflict becomes prolonged and crude prices remain above $100 per barrel. Higher imported inflation could constrain monetary policy, raise borrowing costs, and weaken demand, prompting tighter lending standards, particularly for MSMEs, energy-intensive industries, transport, aviation, and unsecured retail credit, the report said. Crisil, in its March 11 note, also warned that heightened global uncertainty may “continue to constrain private investment, and the recent increase in uncertainties in the Middle East can also dent investment sentiment.”
As Makkar from ICRA put it, the sustainability of this revival in private capex over the medium term, “will hinge on how India’s policy environment adjusts to mitigate the uncertainties in the global trade and geopolitical environment.”
